Microsoft, Apple, And Visa Are Top Gain 'Safer' Dividend Dow Dogs Per Broker October Estimates

Summary

• 23 of 30 Dow Industrial Index stocks were tagged for "safer" dividends because they showed positive one-year returns and free cash flow yields greater than their dividend yields 10/26/17.
• Broker target-estimated top ten net 'safer' dividend dog net gains from UNH, UTX, MRK, IBM, PFE, INTC, DIS, V, AAPL, & MSFT ranged 7.48%-17.88% and were led by MSFT.
• Top 10 "safer" dividend Dow annual yields ranged 2.33% to 3.91% from UTX; JNJ; MCD; INTC; MRK; PG; CSCO; PFE; XOM; IBM. Their free cash flow yields ranged 2.80%-7.47%.
• Besides safety margin, Dow dividend dogs also reported payout ratios (lower is better), total annual returns, and dividend growth, to further document their financial credibility. Total annual returns narrowed the "Safer" dividend Dow list of 30 to 28 eliminating the negatives.
• Analyst one year targets predicted that ten highest yield 'safer' dividend Dow Industrials stocks should accumulate 3.6% more gain from $5k invested in the lowest priced five than from $5K invested in all ten. Little dogs again led Dow Index dividends.

Actionable Conclusions (1-10): Analysts Allege Net Gains of 7.5%-15.61% For Ten "Safer"Dividend Dow Industrial Index Stocks

Five of the ten top 'safer' dividend Dow dogs by yield (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 by analyst September estimates graded out as 50% accurate.

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

Microsoft (MSFT) netted $135.15 based on a median target price set by thirty-two analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 1% more than the market as a whole.

Apple (AAPL) netted $128.72 based on estimates from thirty-eight analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 27% over the market as a whole.

Visa (V) netted $114.61 based on a median target price set by thirty-eight analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 6% under the market as a whole.

Walt Disney (DIS) netted $111.90 based on dividends plus a median target price estimate from thirty-two analysts less broker fees. The Beta number showed this estimate subject to volatility 40% more than the market as a whole.

Intel (INTC) netted $99.47, based on dividends plus a median target price estimate from forty-two analysts, less broker fees. The Beta number showed this estimate subject to volatility 9% over the market as a whole.

Pfizer (PFE) netted $87.44 based on a median target estimate from twenty-three analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 2% more than the market as a whole.

International Business Machines (IBM) netted $84.82 based on a median target price estimate from twenty-six analysts , plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.

Merck & Co (MRK) netted $78.24 based on estimates from twenty-two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 20% under the market as a whole.

United Technologies (UTX) netted $74.81 based on a median target estimate from nineteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 4% more than the market as a whole.

UnitedHealth Group (UNH) netted $74.43 based on a mean target estimate from twenty-two analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 37% less than the market as a whole.

Average net gain in dividend and price was 9.9% on $10k invested as $1k in each of these ten Dow "safer" dividend stocks. This gain estimate was subject to average volatility 2% more than the market as a whole.

Actionable Conclusion (11): (Bear Alert) Analysts Projected One 'Safer' Dividend Dow Dog To Lose 3.86% By October, 2018

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

3M Company (MMM) projected a loss of $38.63 based on dividend and a median target price estimate from fifteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 9% 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".

Seven of Eleven Sectors Show "Safer" Dividends In The Dow Index

Seven sectors are represented by the 23 "Safer" members of the Dow Industrials Index. Those 23 stocks showed positive annual returns and margins of cash to cover dividends by this screen as of October 26.

The "safer" dividend Dow index representation by sector, broke-out, thus: Technology (5); Energy (1); Healthcare (4); Consumer Defensive (2); Consumer Cyclical (3); Industrials (4); Financial Services (4).

The first six of the seven sectors listed were represented by the top ten Dow 'safer' dividend team by yield.

Sectors not represented (by Dow design) were real estate and utilities. The safety screen threw out the basic materials and communication services representatives.

23 of 30 Dow Firms With "Safer" Dividends

Periodic Safety Inspection

A previous article discussed the attributes of the 30 Dow stocks.

You see grouped below the tinted list documenting 23 that passed the Dow 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 two with sagging prices.

Financial guarantees however are easily co-opted by boards of directors or company policy cancelling or varying the payout of dividends to shareholders. For example, Cisco Systems joined the Dow Industrial index in 2009 but only began paying quarterly dividends as of as of May, 2011.

Venerable Procter & Gamble (PG) has not cut or reduced dividends but has carefully regulated their annual increases in slow business periods.

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 when appearing in all five columns after the dividend ratio are remarkable solid financial signals.

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 Conclusions: Wall St. Analysts Expected A (13) 4.84% 1 yr. Average Upside And A (14) 5.8% Net Gain From Top 23 "Safer" Dividend Dow Stocks

Top dogs on the Dow Index "safer" dividend list were graphed above to compare relative strengths by dividend and price as of October 23, 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 4.2% lower dividend from $10K invested as $1k in the top ten October Dow "Safer" dogs while aggregate single share price was projected to increase by 4.2% in the coming year.

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 have historically provided the most accurate estimates.

A beta (risk) ranking for each stock was listed 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 Small Bargains From Lowest Priced Highest Yield "Safer" Dividend Dow Stocks

Ten "Safer" dividend Dow firms with the biggest yields October 23 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: Analysts Augured (15) 5 Lowest Priced, of Ten "Safer" Dividend High Yield Dow Index Dogs To Deliver 6.85% VS. (16) 6.61% Net Gains from All Ten by October, 2018

$5000 invested as $1k in each of the five lowest priced stocks in the "safe" ten Dow Index pack by yield were determined by analyst 1 year targets to deliver 3.6% more gain than $5,000 invested as $.5k in all ten. The third lowest priced "safer" dividend Dow dog, Intel (INTC) showed the best analyst augured net gain of 9.95% per their target estimates.

Lowest priced five "safer" dividend Dow Index dogs as of October 26 were: Cisco Systems (CSCO); Pfizer (PFE); Intel (INTC); Merck & Co (MRK); Exxon Mobil (XOM), with prices ranging from $34.27 to $83.47.

Higher priced five "Safer" Dividend Dow Index dogs as of October 26 were: Procter & Gamble (PG); United Technologies (UTX); Johnson & Johnson (JNJ); International Business Machines (IBM); McDonald's (MCD), with prices ranging from $87.50 to $164.01. The low price small dogs of the Dow stayed on top!

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, this glossary instablog to interpret my abbreviated headings, and this instablog to aid your safe investing. --Fredrik Arnold

Stocks listed above were suggested only as possible starting points for your safest "Safer" Dow Index dog dividend stock research process. These were not recommendations.

Three or more of these Dow 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 52 DOTWII found on The Dividend Dog Catcher premium site. A Dogs of the Week III (DC Safari To Success) portfolio launched September 8. 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: tackletrading.com

Analyst’s Disclosure: I am/we are long CSCO, INTC, GE, PFE. 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.