S&P MidCap 400 'Safer' Dividend Dogs Led By CoreCivic, Chico's & Brinker July Gains

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Includes: AEO, CHS, CXW, EAT, EPR, FNB, LAMR, LHO, MCY, NYCB, ORI, PACW, UBSI, UFS
by: Fredrik Arnold

Summary

26 of 58 S&P MidCap 400 Index top-yield dividend stocks showed positive one-year returns and free cash-flow yields greater than dividend yields 7/10/17. Those 26 were deemed "safer" for dividends.

Broker target-estimated July top ten net 'safer' gains ranged 8.8%-43.7%, three best were EAT, CHS, & CXW as of 7/10/17.

Top 10 "safer" dividend S&P MidCap 400 Index yields ranged 3.49%-6.22% from ORI; PACW; UFS; AEO; LAMR; MCY; NYCB; EPR; LHO; CXW. Their free cash flow yields ranged 5.64%-11.43%.

Besides safety margin, S&P MidCap 400 Index dividend dogs also reported payout ratios (lower is better), total annual returns, and dividend growth. Total annual returns narrowed the Index list from 58 to 63 by eliminating 5 stocks that reported negative returns.

Analyst one year targets revealed ten highest yield "safer" dividend S&P MidCap 400 Index stocks that could accumulate 32.51% more gain from $5k invested in the lowest priced five than from $5K invested in all ten. Little dogs ruled the "safer" dividend S&P MidCap 400  Index for July.

Actionable Conclusions (1-10): Brokers Bet Top Ten "Safer" Dividend S&P MidCap 400 Stocks to Net 8.77% to 43.69% Gains To July 2018

Six of the ten top yield "safer" Dividend S&P MidCap 400 dogs (shaded in the list 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 July proved 60% accurate.

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

CoreCivic (CXW) netted $436.90 based on dividends plus a median target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 7% more than the market as a whole.

Chico's FAS (CHS) netted $398.95, based on dividends plus a target price estimate from fifteen analysts, minus broker fees. The Beta number showed this estimate subject to volatility 33% less than the market as a whole.

Brinker International (EAT) netted $285.03 based on mean target price estimates from eighteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 73% less than the market as a whole.

F.N.B Corporation (FNB) netted $226.83 based on a median target estimate from ten analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 5% less than the market as a whole.

PacWest Banc (PACW) netted $200.30 based on a median target price estimate from eleven analysts, plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 58% greater than the market as a whole.

Old Republic International (ORI) netted $199.71, based on dividends plus a median target price estimate from two analysts, less broker fees. The Beta number showed this estimate subject to volatility 32% more than the market as a whole.

American Eagle Outfitters (AEO) netted $171.11 based on an estimate from nineteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 9% more than the market as a whole.

United Bankshares (UBSI) netted $161.03 based on estimates from five analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 7% more than the market as a whole.

EPR Properties (EPR) netted $158.36 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 42% less than the market as a whole.

Domtar (UFS) netted $87.72 based on a mean target estimate from thirteen analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 49% more than the market as a whole.

Average net gain in dividend and price was 23.26% on $10k invested as $1k in each of these ten "safer" Dividend S&P MidCap 400 Index stocks. This gain estimate was subject to average volatility 11% more 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".

26 of 58 S&P MidCap 400 Firms Showed "Safer" Dividends

Periodic Safety Inspection

A previous article discussed the attributes of 50 constituents of S&P MidCap 400 Index that were culled from this master list of 58.

You see grouped below the tinted list documenting 26 of 58 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 five with sagging price returns.

Financial guarantees however are easily re-allocated by boards of directors tooling 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.

Six of Eleven Sectors Bring "Safer" Dividends to The S&P MidCap 400 Index

Six Morningstar sectors of eleven are represented by the 26 "Safer" dividend members of the S&P MidCap 400 Index. They showed positive annual returns and margins of cash to cover dividends by this screen as of July 10.

The "safer" dividend S&P MidCap 400 Index sector representation broke-out, thus: Real Estate (5); Financial Services (10); Consumer Cyclical (6); Basic Materials (2); Technology (2); Healthcare (1); Communication Services (0); Consumer Defensive (0); Energy (0);Industrials (0); Utilities (0).

The first four industries listed above made the top ten 'safer' dividend S&P MidCap 400 Index team by yield.

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 (12) A 10.99% 1 yr. Average Upside and (13) A 12.95% Net Gain For Top 20 July "Safer" Dividend S&P MidCap 400 Stocks

Top dogs on the S&P MidCap400 "safer" Dividend list were graphed above to compare relative strengths by dividend and price as of July 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 9.2% lower dividend from $10K invested as $1k in the S&P MidCap 400 dogs while aggregate single share price was projected to increase by 8% in the coming year.

Notice the S&P MidCap 400 'safer' dividend dogs show price vector intersecting the vector for dividends derived from a $1k investment in each. When those coordinates intersect, an overbought condition will occur, similar to the present overpriced condition 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 Bountiful Bargains From Lowest Priced 5 of Top 10 Top Yielding "Safe" Dividend S&P MidCap 400 Index Stocks

Ten "Safer" Dividend S&P MidCap 400 firms with the biggest yields July 10 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: Analysts Predicted (14) 5 Lowest Priced, of Ten "Safer" Dividend S&P MidCap 400, Will Deliver 18.64% VS. (15) 14.07% Net Gains from All Ten by July 2018

$5000 invested as $1k in each of the five lowest priced stocks in the "safer" Dividend S&P MidCap 400 Index 10 pack by yield were determined by analyst 1 year targets to deliver 32.51% more gain than $5,000 invested as $.5k in all ten. The fourth lowest priced "safer" S&P MidCap 400, CoreCivic (CXW) showed the best analyst augured net gain of 43.69% per their target estimates.

Lowest priced five "safer" Dividend S&P MidCap 400 Index dogs as of July 10 were: American Eagle Outfitters (AEO); New York Community Banc (NYCB); Old Republic International (ORI); CoreCivic (CXW); LaSalle Hotel Properties (LHO), with prices ranging from $11.25 to $29.35.

Higher priced five "Safer" Dividend S&P MidCap 400 Index dogs as of July 10 were: Domtar (UFS); PacWest Banc (PACW); Mercury General (MCY); EPR Properties (EPR); Lamar Advertising (LAMR), with prices ranging from $37.97 to $72.21. The little S&P MidCap 400 Index dogs know their stuff.

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 MidCap 400 Index dog dividend stock research process. These were not recommendations.

Three or more of these "Safer" Dividend S&P MidCap 400 dividend pups qualified as a valuable catches! Look for where they might reside among the 52 Dogs of the Week (DOTW)I and others among forty-eight 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: zastavki.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.

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