Dogs Of The 'Safer' S&P/TSX Composite Index Envy Aimia's Monster June 2018 Upside

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Includes: ALARF, ARESF, BOWFF, CJREF, FRHLF, GAPFF, GMICF, IGIFF, IPPLF, ITPOF, LUCRF, MFC, NPRUF, NTR, TRSWF
by: Fredrik Arnold
Summary

45 of 107 S&P/TSX Composite Index top yield dividend stocks showed positive one-year returns and free cash flow yields greater than dividend yields 6/1/17. Thus, those 45 were termed "safer".

Broker target-estimated May/June top ten net 'safer' gains ranged 16.9%-112.59% and were topped by AIM.TO as of 6/1/17.

Top 10 "safer" dividend S&P/TSX Composite Index yields ranged 5.42% to 34.33% from SRU.UN.TO; MIC.TO; RNW.TO; IGM.TO; IPL.TO; NVU.UN.TO; AD.TO; AX.UN.TO; CJR.B.TO; AIM.TO. Their free cash flow yields ranged 6.50%-64.45%.

Besides safety margin, S&P/TSX Composite Index dogs also reported payout ratios (lower is better), total annual returns, and dividend growth, as of 6/1/17 to further document their financial strength.  Total annual returns narrowed the "Safer"  list of 107 to 102 by eliminating 5 stocks that reported negative returns.

Analyst one year targets revealed that ten highest yield "safer" dividend S&P/TSX Composite  Index stocks may accumulate 28.81% more gain from $5k invested in the lowest priced five than from $5K invested in all ten. Little dogs ruled the S&P/TSX Composite 'Safer'  Index.

Actionable Conclusions (1-10): Brokers Augur Top Ten “Safer”S&P/TSX Composite Dividend Stocks to Net 16.89% to 112.59% Gains To May/June, 2018

Five of the ten top yield “Safer” S&P/TSX Composite dogs (shaded 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 50% accurate.

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

Aimia [AIM.TO](OTCPK:GAPFF) was projected to net $1,125,92, based on dividends, plus median target price estimates from ten analysts, less broker fees. The Beta number showed this estimate subject to volatility 58% less than the market as a whole.

Freehold Royalties [FRU.TO] (OTCPK:FRHLF) was projected to net $326.60, based on target price estimates from fourteen analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 12% less than the market as a whole.

Genworth MI Canada [MIC.TO](OTCPK:GMICF) was projected to net $285.15, based on a median target estimates from seven analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 74% more than the market as a whole.

Alaris Royalty [AD.TO](OTC:ALARF) was projected to net $228.50, based on dividends, plus a mean target price estimate from eleven analysts, less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.

Lucara Diamond [LUC.TO](OTCPK:LUCRF) was projected to net $225.90, based on a median target price estimate from six analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 82% more than the market as a whole.

Intertape Polymer Group [ITP.TO](OTCPK:ITPOF) was projected to net $218.99, based on a median target price estimate from six analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 12% opposite the market as a whole.

Smart Real Estate [SRU.UN.TO] (OTCPK:CWYUF) was projected to net $184.21, based on dividends, plus a mean target price estimate from nine analysts, less broker fees. A Beta number was not available for SRU.UN.TO.

Agrium [AGU.TO] (AGU) was projected to net $181.68, based on dividends, plus a mean target price estimate from twenty analysts, less broker fees. The Beta number showed this estimate subject to volatility 19% less than the market as a whole.

Inter Pipeline [IPL.TO] (OTCPK:IPPLF) netted $171.04 based on a median target price estimate from thirteen analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.

Manulife Financial [MFC.TO] (MFC) was projected to net $168.92 based on dividends, plus a median target estimate from seventeen brokers, less broker fees. The Beta number showed this estimate subject to volatility 36% more than the market as a whole.

The average net gain in dividend and price was estimated at 38.96% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 36% more than the market as a whole.

Actionable Conclusion (11): (Bear Alerts) Brokers Projected One “Safer”S&P/TSX Composite Dividend Dog To Make A 3.96% Loss By June, 2018

The probable losing trade revealed by YCharts for 2018 was:

Boardwalk REIT [BEI.UN.TO] (OTCPK:BOWFF) lost $39,59 based on a median target price estimate from twkve analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 74% less than the market as a whole.

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".

45 of 107 S&P/TSX Composite Firms Had "Safer" Dividends

Periodic Safety Inspection

A previous article discussed the attributes of the top 60 constituents of the S&P/TSX Composite Index.

You see grouped below the tinted list documenting 45 that passed the dividend dog "safer" check with positive past-year returns and cash flow yield sufficient to cover their anticipated annual dividend yield. The margin of excess is shown in the bold face "Safety Margin" column. The total returns column screened out ten with drooping prices.

Eight of Eleven Sectors Bring "Safer" Dividends to The S&P/TSX Composite Index

The 45 "Safer" members of the S&P/TSX Composite Index showed positive annual returns and margins of cash to cover dividends by this screen as of 6/1/17.

The "safer" dividend S&P/TSX Composite Index sector representation broke-out, thus: Industrials (6); Consumer Cyclical (4); Real Estate (5); Financial Services (16); Energy (4); Utilities (2); Communication Services (1); Basic Materials (6); Consumer Defensive (0); Healthcare (0); Technology (0).

The first six industries listed above populated the top ten 'safer' dividend collection for the S&P/TSX Composite team by yield.

Financial success however is easily re-prioritized by boards of directors or company policy 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 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. Positive results in all five columns after the dividend ratio send a remarkably 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 Conclusions: Wall St. Brokers Predict An (12) 11.6% 1 yr. Average Upside and (13) 13.31% Net Gain For Top 30 May/June "Safer" Dividend S&P/TSX Composite Stocks

Top dogs on the S&P/TSX Composite "safer" Dividend list were graphed above to compare relative strengths by dividend and price as of 6/1/17 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 14.4% lower dividend from $10K invested as $1k in the S&P/TSX Composite dogs while aggregate single share price was projected to increase by 9% in the coming year.

Notice the S&P/TSX Composite 'safer' dividend dogs show price approaching the vector for dividends derived from a $1k investment in each. If those coordinates intersect, that signals an overbought condition similar to those of the S&P500 Aristocrats, NASDAQ 100, and Dow dogs.

The number of analysts contributing to the median 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 estimate.

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.

Dog Metrics Revealed Attractive Bargains From Lowest Priced 5 of Top 10 Top Yielding "Safe" Dividend S&P/TSX Composite Index Stocks

Ten "Safer" Dividend S&P/TSX Composite firms with the biggest yields 6/1/17 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: (14) Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend S&P/TSX Composite Dogs, Will Deliver 29.63% VS. (15) 23.01% Net Gains from All Ten by June, 2018

$5000 invested as $1k in each of the five lowest priced stocks in the "safer" Dividend S&P/TSX Composite Index 10 pack by yield were determined by analyst 1 year targets to deliver 28.81% more gain than $5,000 invested as $.5k in all ten. The very lowest priced "safer" Dividend S&P/TSX Composite dog, Aimia [AIM.TO](OTCPK:GAPFF) showed the best analyst augured net gain of 34.33% per their target estimates.

Lowest priced five "safer" Dividend S&P/TSX Composite Index dogs as of June 1 were: Aimia; Artis REIT [AX.UN.TO] (OTCPK:ARESF); Corus Entertainment [CRJ.B.TO] (OTCPK:CJREF); TransAlta Renewables [RNW.TO] (OTC:TRSWF);Alaris Royalty [AD.TO] (OTC:ALARF), with prices ranging from $2.33 to $20.04.

Higher priced five "Safer" Dividend S&P/TSX Composite dogs as of June 1 were: Northview Apartment REIT [NVU.UN.TO] (OTC:NPRUF); Inter Pipeline [IPL.TO] (OTCPK:IPPLF]; Smart Real Estate [SRU.UN.TO] (OTCPK:CWYUF); Genworth MI Canada [MIC.TO] (OTCPK:GMICF); IGM Financial [IGM.TO] (OTCPK:IGIFF), with prices ranging from $21.15 to $39.86. The small S&P/TSX Composite Index dogs made the grade.

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 safest "Safer" Dividend S&P/TSX Composite Index dog dividend stock research process. These were not recommendations.

None of these "Safer" Dividend S&P/TSX Composite Index dividend pups qualified as a valuable catches! They could help make investing fun again! Look for where they might reside among the 52 Dogs of the Week (DOTW)I and others among Forty-two DOTWII found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.

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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: torontograndprixtourist.com

Disclosure: I am/we are long MFC. 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.