31 Industrials Sector Dogs 'Safer' Dividends Yield 3% To 14.6% In April

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Includes: ARII, BGC, BGSF, CODI, DLNG, EBF, GAPFF, GMLP, KNOP, NAP, QUAD, ROYMF, USDP
by: Fredrik Arnold

Summary

31 of 86 Industrials Sector stocks showed positive one-year returns and free cash flow yields greater than dividend yields 4/13/17. By total annual returns, those 31 were called "safer" for dividends.

Top 10 "safer" April Industrials Sector annual yields ranged 6.61% to 14.63% from ROYMF; BGSF; CUUHF; CODI; GAPFF; USDP; KNOP; DLNG; GMLP; and NAP. Their free cash flow yields ranged 6.85-20.49%.

Besides safety margin, Industrials dogs also reported payout ratios (lower is better), total annual returns, and dividend growth, as of 4/13/17, to further document their financial strength.

Total annual returns narrowed the list of 86 to 62 just by dropping those with negative numbers.

Analyst one-year targets revealed 10 highest yield safe Industrials Sector stocks can expect 33.14% LESS gain from $5k invested in the lowest-priced five than from $5k invested in all 10.

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, and (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".

Which Industries Put "Safe" Dividends In The Industrials Sector?

Twenty-three industrial industries compose the Industrials sector, and 12 of those were represented by the 31 firms whose stocks showed positive returns and margins of cash to cover dividends by this screen as of April 13.

The industry representation broke out, thus: Shipping & Ports (5); Railroads (3); Business Services (2); Conglomerates (6); Engineering & Construction (2); Staffing & Outsourcing Services (1); Integrated Shipping & Logistics (1); Diversified Industrials (3); Industrial Distribution (3); Business Equipment (2); Airports & Air Services (1); and Aerospace & Defense (2).

The first seven industries listed above populated the top 10 industrials "safer" dividend dog team by yield.

31 of 86 Industrials Firms With "Safer" Dividends

Periodic Safety Inspection

A previous article discussed the attributes of the 50 top yield Industrials stocks.

You see grouped below the tinted list of 31 that passed the Industrials dog "safer" check with positive past-year returns and cash flow yield sufficient to cover their anticipated annual dividend yield. The margin of cash excess is shown in the bold face "Safety Margin" column.

Financial guarantees, however, are easily overruled by boards of directors or company policies cancelling or varying the payout of dividends to shareholders. This article contends that adequate cash flow is a strong justification for a company to sustain annual dividend increases to shareholders.

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 reach beyond yield to select reliable payout stocks. Total annual returns narrowed the 86 dogs list to 56 for this article. Positive results in all five columns after the dividend ratio are remarkable as a solid financial signal.

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

Actionable Conclusion (3): Wall St. Brokers Predicted A 5.38% One-Year Average Upside And 11.59% Net Gain For Top 30 April "Safer" Industrials Stocks

Top dogs on the Industrials stock list were graphed above to compare relative strengths by dividend and price as of April 13, 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 10 highest-yielding stocks and the aggregate single share prices of those 10 stocks created the data points applied to 2017. Projections based on estimated increases in dividend amounts from $1,000 invested in the 10 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 not applied (n/a).

Analysts projected a 3.4% lower dividend from $10k invested as $1k in the top 10 April Industrials dogs while aggregate single share price was projected to increase by 4.9% 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 not applied.

A beta 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 Cast Top 10 Industrials "Safer" Dog Stocks To Net 8% To 38% Gains To April 2018

Six of the 10 top dividend Industrials dogs (shaded in the chart above) were verified as being among the top 10 gainers for the coming year based on analyst one-year target prices. Thus the dog strategy for this Industrials group as graded by analyst estimates for April proved 60% accurate.

Ten probable profit-generating trades were illustrated by YCharts analytics for 2018:

Quad/Graphics (NYSE:QUAD) netted $380.84 based on estimates from six analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 45% more than the market as a whole.

General Cable (NYSE:BGC) netted $255.08, based on dividends, plus a median target price estimate from two analysts, less broker fees. The Beta number showed this estimate subject to volatility 145% more than the market as a whole.

BG Staffing (NYSEMKT:BGSF) netted $248.46, based on mean target price estimates from two analysts, plus dividends, less broker fees. A Beta number was not available for BGSF.

Compass Diversified Holdings (NYSE:CODI) netted $198.99, based on estimates from seven analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 30% less than the market as a whole.

Ennis (NYSE:EBF) netted $198.24, based on dividend, plus a median target price estimate from one analyst, less broker fees. The Beta number showed this estimate subject to volatility 10% less than the market as a whole.

Golar LNG Partners (NASDAQ:GMLP) netted $166.59, based on a median target price estimate from 11 analysts, plus projected annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 4% less than the market as a whole.

Navios Maritime Midstream (NYSE:NAP) netted $121.99 based on estimates from five analysts, plus dividends, less broker fees. A Beta number was not available for NAP.

American Railcar Industries (NASDAQ:ARII) netted $92.32 based on dividends alone, less broker fees. The Beta number showed this estimate subject to volatility 150% more than the market as a whole.

USD Partners (NYSE:USDP) netted $84.83, based on estimates from five analysts, plus dividends, less broker fees. A Beta number was not available for USDP.

KNOT Offshore Partners (NYSE:KNOP) netted $80.31, based on dividends, plus mean target price estimates from seven analysts, less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.

Average net gain in dividend and price was 18.28% on $10k invested as $1k in each of these 10 Industrials dog stocks. This gain estimate was subject to average volatility 39% more than the market as a whole.

Dog Metrics Revealed No Bargains From Lowest Priced Top 10 Yielding "Safe" Dividend Industrials Sector Stocks

Ten "Safe" Industrials firms with the biggest yields April 13 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: (1) Analysts Predicted Five Lowest Priced Of 10 "Safer" Dividend High-Yield Industrials Sector Dogs Will Deliver 7.53% Vs. (2) 11.26% Net Gains From All Ten By April 2018

$5,000 invested as $1k in each of the five lowest-priced stocks in the "safe" 10 Industrials Sector pack by yield were determined by analyst one-year targets to deliver 33.14% LESS gain than $5,000 invested as $.5k in all 10. The sixth lowest priced "safer" dividend Industrials dog, BG Staffing, showed the best analyst augured net gain of 24.85% per targets.

Lowest-priced five "safe" Industrials dogs as of April 13 were: Stuart Olson (OTCPK:CUUHF); Royal Mail (OTCPK:ROYMF); Aimia (OTCPK:GAPFF); Navios Maritime Midstream; and USD Partners, with prices ranging from $4.22 to $14.50.

Higher-priced five "Safer" Dividend Industrials dogs as of April 13 were: BG Staffing; Compass Diversified Hldgs; Dynagas LNG Partners (NYSE:DLNG); Golar LNG Partners; and KNOT Offshore Partners, with prices ranging from $14.90 to $22.55. Big Industrials dogs rule here.

This distinction between five low-priced dividend dogs and the general field of 10 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. It's 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 safest "Safer" Industrials dog dividend stock research process. These were not recommendations.

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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: hdwallpapersphotos.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.