'Safer' Dividend Russell 1000 Dogs Admire Retail Properties' Net Gain, Per Analysts' June Targets

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Includes: AGNC, APLE, CIM, CXW, EPR, IGT, KSS, LYB, M, MCY, NAVI, NLY, OUT, PACW, RPAI, SIX, VER
by: Fredrik Arnold
Summary

33 of 79 Russell 1000 Index stocks showed positive one-year returns and free cash flow yields greater than dividend yields 6/6/17. Those 33 were deemed "safer" for dividends.

Broker target-estimated June top ten net 'safer' gains ranged 20,2%-40.8%, and were topped by RPAI as of 6/6/17.

Top 10 "safer" Russell 1000 yields ranged 5.69% to 10.75% from CXW; EPR; KSS; APLE; OUT; VER; M; NLY; AGNC; CIM. Their free cash flow yields ranged 3.69%-12.19%.

Besides safety margin, Russell 1000 issues also reported payout ratios (lower is better), total annual returns, and dividend growth, as of 6/6/17 to better gauge financial strength.

One-year targets revealed that 10 highest yield "safer" Russell 1000 Index stocks may produce 49.48% less gain from $5k invested in the lowest-priced five than from $5K invested in all 10.

Actionable Conclusions (1-10): Brokers Augur Top Ten “Safer” Russell 1000 Stocks Net 20.2% to 40.8% Gains To June, 2018

Four of the ten top yield "safer" Dividend Russell 1000 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 May proved 40% accurate.

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

Retail Properties of America (RPAI) netted $407.85 based on dividends plus a median target price estimate from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 51% less than the market as a whole.

International Game Technology (IGT) netted $346.63 based on estimates from eight analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 35% more than the market as a whole.

Macy's (M) netted $332.05 based on a median target price estimate from twenty-four analysts, plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.

CoreCivic (CXW) netted $313.56 based on estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.

Outfront Media (OUT) netted $298.65, based on dividends plus a median target price estimate from eight analysts, less broker fees. No Beta number was available for OUT.

Navient Corporation (NAVI) netted $257.89 based on a median target estimate from nine analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 146% more than the market as a whole.

PacWest Banc (PACW) netted $240.61, based on dividends plus a target price estimate from ten analysts, minus broker fees. The Beta number showed this estimate subject to volatility 58% more than the market as a whole.

Six Flags Entertainment (SIX) netted $208.32 based on mean target price estimates from twelve analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 23% more than the market as a whole.

LyondellBasell Industries (LYB) netted $203.15 based on a mean target estimate from twenty-one analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 4% morethan the market as a whole.

VEREIT (MCY) netted $202.36 based on a median target price set by ten analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 33% less than the market as a whole.

Average net gain in dividend and price was 28.11% on $10k invested as $1k in each of these ten "safer" Dividend Russell 1000 stocks. This gain estimate was subject to average volatility 18% more than the market as a whole.

Actionable Conclusion (11): (Bear Alert) Analysts Expected One 'Safer' Dividend Russell 1000 Dog To Make A 6% Loss By June, 2018

The probable losing trade revealed by Y-Charts by 2018 was:

Mercury General (MCY) projected a loss of $60.44 based on dividend and a median target price estimate from three analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 53% 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".

Eight of Eleven Sectors Bring "Safer" Dividends to The Russell 1000 Index

Eight sectors are represented by the 33 "Safer" members of the Russell 1000 Index. Those showed positive annual returns and margins of cash to cover dividends by this screen as of June 6.

The "safer" Russell 1000 sector representation broke-out, thus: Real Estate (12); Consumer Cyclical (8); Financial Services (5); Communication Services (1); Energy (3); Basic Materials (2); Consumer Defensive (1); Utilities (1); Healthcare (0); Industrials (0); Technology (0).

The first two sectors shown in the above list composed the top ten Aristocrats 'safer' dividend team by yield.

33 of 79 Russell 1000 Firms With "Safer" Dividends

Periodic Safety Inspection

A previous article discussed attributes of 50 constituents of the Russell 1000 Index.

You see grouped below the tinted list documenting 33 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 fourteen with sagging prices.

Financial guarantees however are easily re-directed 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 is a remarkable 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. Analysts Expect (12) A 3.97% 1 yr. Average Upside And (13) A 4.65% Net Gain For Top 30 June "Safer" Dividend Russell 1000 Stocks

Top dogs on the Russell 1000 "safer" list were graphed above to compare relative strengths by dividend and price as of June 6, 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 4.3% lower dividend from $10K invested as $1k in the top ten May "Safer" Dividend Russell 1000 dogs while aggregate single share price was projected to increase by 3.66% in the coming year.

Notice how the price vector is rising to meet the dividend path. When they cross, these "Safer" Russell 1000 dividend dogs will move into overpriced and overbought status like the Dow, S&P500 Aristocrats, and NASDAQ 100 indices.

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 No Bargains From Lowest Priced Top Ten Yielding "Safe" Dividend Aristocrats Index Stocks In May

Ten "Safer" Russell 1000 firms with the biggest yields June 6 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: (14) Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend Russell 1000, Will Deliver 8.53% VS. (15) 16.88% Net Gains from All Ten by June, 2018

$5000 invested as $1k in each of the five lowest priced stocks in the "safer" Dividend Russell 1000 Index 10 pack by yield were determined by analyst 1 year targets to deliver 49.48% LESS gain than $5,000 invested as $.5k in all ten. The sixth lowest priced "safer" Dividend Russell 1000 dog, Macy's (M) showed the best analyst augured net gain of 33.21% per their target estimates.

Lowest priced five "safer" Dividend Russell 1000 Index dogs as of June 6 were: VEREIT (VER); Annaly Capital Management (NLY); Chimera Investment (CIM); Apple Hospitality REIT (APLE); AGNC Investment (AGNC), with prices ranging from $8.14 to $20.93.

Higher priced five "Safer" Dividend Russell 1000 Index dogs as of June 6 were: Macy's (M); Outfront Media (OUT); CoreCivic (CXW); Kohl's (KSS); EPR Properties (EPR), with prices ranging from $21.90 to $71.12. The big Russell 1000 dogs are back.

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 Russell 1000 Index dog dividend stock research process. These were not recommendations.

Two or more of these "Safer" Dividend Russell 1000 Index 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 41 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 YCharts, Yahoo Finance; analyst mean target price by Thomson/First Call from Yahoo Finance. Dog photo from Fanpop.com.

Disclosure: I am/we are long T, VZ. 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.