48 'Safer' Basic Materials Dog Gains Led By Coal, Paper, Metals And Chem In April

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Includes: AHGP, ARLP, BAK, CELTF, CINR, CNXC, ERELY, FSUGY, IPHS, MERC, NRP, RIO, SWM, SXCP, VEDL
by: Fredrik Arnold

Summary

48 of 83 Basic Materials top yield stocks showed positive annual-returns, and free cash-flow yields greater than dividend yields 4/10/17. Those 48 were tagged "safer".

Top 10 "safer" April Basic Material annual yields ranged 6.6% to 15% from FSUGY; VEDL; CELTF; ERELY; BAK CINR; AHGP; ARLP;CNXC; SXCP. Their free cash flow yields ranged 7.53%-37.44%.

Besides safety margin, "safer" basic materials dogs also reported payout ratios (lower is better), total annual returns, and dividend growth, as of 4/10/17 to further quantify their financial worth.

A dozen basic materials big yield dogs were disqualified in this "safer" screening process due to their negative annual returns.

Analyst one year targets revealed that $5k invested in the lowest priced five of ten top "safe" basic materials stocks projected 30.92% LESS gain than that from $5K invested in all ten.

The Dividend Dogs Rule

The "dog" moniker was earned by stocks exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs." More specifically, these are, in fact, best called, "underdogs."

"Safer" April Basic Materials Dogs

Yield (dividend / price) results from here April 10 supplemented by 1 year total returns (Annual) verified by YCharts for forty-eight stocks th basic materials sector revealed the actionable conclusions discussed below.

Ten Industries Represented By The 48 "Safer" Basic Materials Equities Listed

Ten of thirteen component industries in the basic materials sector were represented by the set of 48 firms showing positive annual returns and whose dividends were backed by adequate cash as of April 10. The industry representation broke out as follows: Coal (5); Industrial Metals & Minerals (13); Chemicals (5); Steel (5); Gold (1); Building Materials (3); Agricultural Inputs (3); Paper & Paper Products (5); Specialty Chemicals (7); Copper (1); Aluminum (0); Lumber & Wood Production (0); Silver (0).

Top ten "safer" basic materials dogs showing positive returns and the safety margin of cash to cover dividends as of April 10 represented the first five industries on the list above.

Basic Materials With "Safer" Dividends

Periodic Safety Inspection

A previous article discussed the attributes of the 30 Top yield Basic Materials stocks. Below is the list of 48 resulting from the "safety" check noting positive annual returns and free annual cash flow yield sufficient to cover their estimated annual dividend yield.

Corporate financial success, however, is easily manipulated by any board of directors choosing to promote company policies cancelling or varying the payout of dividends to shareholders. This article contends that adequate cash flow is strong justification for a company to sustain annual dividend increases.

Three additional columns of financial data, listed after the Safety Margin figures above, reveal payout ratios (lower is better), total annual returns, and dividend growth levels for each stock. This data is provided to show additional methods to reach beyond yield to select reliable payout stocks. Positive results in all five columns after the dividend ratio is a remarkable financial accomplishment.

To quantify top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metric, analyst mean price target estimates were another tool to dig out bargains.

Actionable Conclusion (3): Wall St. Analysts Forecast A 6.36% 1 yr. Average Upside and 10.56% Net Gain From Top 30 "Safer" Basic Materials Dogs

Dogs on the "Safer" basic materials stock list were graphed above to compare relative strengths by dividend and price as of April 10, 2017 with those projected by analyst mean price target estimates to the same date in 2018.

Historic prices and actual dividends paid from $10,000 invested as $1K in each of the ten highest yielding stocks and the aggregate single share prices of those ten stocks created the data points applied to 2017.

Projections based on estimated increases in dividend amounts from $1000 invested in the ten highest yielding stocks and aggregate one year analyst mean target prices as reported by Yahoo Finance created the 2018 data points in blue for dividend and green for price. Note: one year target prices from one analyst were usually not applied (n/a).

Analysts projected a 6.8% lower dividend from $10K invested as $1k in the top ten April basic material "Safer" dogs while aggregate single share price was projected to increase by 6.6% in the coming year.

The number of analysts contributing to the mean target price estimate for each stock was noted in the next to the last column on the above chart. Three to nine analysts were considered optimal for a valid projection estimate. Estimates provided by one analyst were usually not applied (n/a).

A beta (risk) ranking for each stock was provided in the far right column. A beta of 1 meant the stock's price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement. A negative beta number indicated the degree of a stock price movement opposed to market direction.

Actionable Conclusion (4): Analysts Allege Top Ten "Safer" Basic Materials Dog Stocks Might Net 10.4% to 40.1% Gains By April, 2018

Six of the ten top "safe" basic materials dogs (tinted gray in the chart above) were verified as being among the Top ten gainers for the coming year based on analyst 1 year target prices. Thus the dog strategy for this group as graded by analyst estimates for April proved 60% accurate.

The ten probable profit generating trades illustrated by YCharts analytics for 2018 were:

CNX Coal Resources (CNXC) netted $401.21 per estimates from seven analysts, plus dividends less broker fees. A Beta number was not available for CNXC.

SunCoke Energy Partners (SXCP) netted $396.20 based on estimates from three analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 31% more than the market as a whole.

Alliance Resource (ARLP) netted $273.18 based on dividends plus a median target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 31% less than the market as a whole.

Mercer International (MERC) netted $263.48 based on mean target price estimates from two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 47% more than the market as a whole.

Schweitzer-Mauduit International (SWM) netted $214.15 based on a target price from two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 9% more than the market as a whole.

Innophos Holdings (IPHS) netted $200.69, based on dividends plus guesses from four analysts, with broker fees subtracted. The Beta number showed this estimate subject to volatility 19% less than the market as a whole.

Alliance Holdings (AHGP) netted $164.02 based on target price estimates from one analyst, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 51% less than the market as a whole

Ciner Resources (CINR) netted $158.42 based on dividends plus price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 1% less than the market as a whole.

Braskem (BAK) netted $127.39 based on target price estimates from five analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 41% more than the market as a whole

Rio Tinto (RIO) netted $104.00 based on dividends and the median price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 20% more than the market as a whole.

Average net gain in dividend and price was 23% on $1k invested in each of these ten "Safer" Achiever dogs. This gain estimate was subject to average volatility 5% more than the market as a whole.

Actionable Conclusion (5): (Bear Alert) Brokers Projected One "Safer" Basic Materials Dog To Lose 5.1% By April, 2018

That probable losing trade revealed by YCharts for 2018 was:

Natural Resources (NRP) projected a loss of $50.87 based on dividend and a median target price estimate from five analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 41% less than the market as a whole.

Dog Metrics Uncovered No Gains From Lowest Priced "Safer" Basic Materials Dogs

Ten "Safer" basic materials firms with the biggest yields April 10 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: (5) Analysts Expected 5 Lowest Priced, of Ten "Safer" High Yield Dividend Achiever Dogs, To Deliver 11.86% VS. (6) 17.17% Net Gains from All Ten by April, 2018

$5000 invested as $1k in each of the five lowest priced stocks in the "safer" ten basic materials pack by yield were determined by analyst 1 year targets to deliver 30.92% LESS net gain than $5,000 invested as $.5k in all ten. The sixth lowest priced "safer" basic materials dog, CNX Coal Resources (CNXC) showed the best net gain of 40.12% per analyst targets.

Lowest priced five "safer" dividend basic materials dogs as of April 10 were: Centamin (OTCPK:CELTF); Erdemir (OTCPK:ERELY); Fortescue Metals Group (OTCQX:FSUGY); SunCoke Energy Partners (SXCP); Vedanta (VEDL), with prices ranging from $2.23 to $15.94.

Higher priced five "Safer" Dividend basic materials dogs as of April 10 were: CNX Coal Resources (CNXC); Braskem (BAK); Alliance Resource (ARLP); Alliance Holdings (AHGP); Ciner Resources (CINR) with prices ranging from $16.50 to $28.91.

This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed for beating the Dow. The added scale of projected gains based on analyst targets contributed a unique element of "market sentiment" gauging upside potential. It provided a here and now equivalent of waiting a year to find out what might happen in the market. Its also the work analysts got paid big bucks to do.

Caution is advised, however, as analysts are historically 20% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of the change.

The net gain estimates mentioned above did not factor-in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

See my instablog for specific instructions about how to best apply the dividend dog data featured in this article and this instablog to aid your safe investing. --Fredrik Arnold

Stocks listed above were suggested only as possible starting points for your "safer" dividend "Safer" Dividend Basic Materials dog stock research process. These were not recommendations.

Three of these "safer" dividend Basic Materials pups qualified as great catches! Find them among the now 52 Dogs of the Week (DOTW)I or among the 34 and growing DOTWII found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information. For a free copy of the monthly top dogs, the quarterly winners, and the dog of the year and runners-up from the 52 Dogs of the Week (DOTW) I portfolio, from the subscriber site, plus a glimpse at the top dogs in DOTW II, click the gray envelope icon below my name under the headline above this article to send a message by SAMail and send your e-mail address, ticker symbol for your favorite dividend stock, and name of your favorite team of any sport or activity. Remember: E-mail, ticker, team!

Root for the Underdog.

Disclaimer: This article is for informational and educational purposes only and should not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security. Prices and returns on equities in this article except as noted are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.ycharts. com; www.finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo from: homeinteriordesignthemes.com.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.