Actionable Conclusions (1-10): Brokers Predicted Top Ten 10%+ ‘Safer’ Dividend Stocks To Net 32.8% to 57.04% Gains To December, 2018
Four of the ten top 10%+‘Safer’ DiviDogs 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 as graded by analyst estimates for this month proved 40% accurate.
Ten probable profit-generating trades were culled by YCharts for 2018:
CNX Coal Resources (CNXC) netted $570.41 based on estimates from six analysts plus dividends less broker fees. No Beta number was available for CNXC.
Capitala Finance (CPTA) netted $568.93 based on a median target price estimate from eight analysts, plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 4% more than the market as a whole.
Alliance Resource (ARLP) netted $442.64 based on a median target price set by five analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 21% less than the market as a whole.
Blueknight Energy (BKEP) netted $437.69, based on dividends plus a median target price estimate from five analysts, less broker fees. The Beta number showed this estimate subject to volatility 10% less than the market as a whole.
Medley Management (MDLY) netted $419.39, based on dividends plus a median target price estimate from four analysts, minus broker fees. The Beta number showed this estimate subject to volatility 32% more than the market as a whole.
Alcentra Capital (ABDC) netted $398.18 based on a median target estimate from five analysts, plus dividends, less broker fees. The Beta number showed this this estimate subject to volatility 31% less than the market as a whole.
KCAP Financial (KCAP) netted $379.41 based on dividends plus a median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 74% more than the market as a whole.
SunCoke Energy Partners (SXCP) netted $360.52 based on estimates from three analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 35% more than the market as a whole.
Seadrill Partners (SDLP) netted $348.72 based on a median target estimate from two analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 126% more than the market as a whole.
Dynagas LNG Partners (DLNG) netted $327.99 based on mean target price estimates from nine analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 10% more than the market as a whole.
Average net gain in dividend and price was 42.54% on $10k invested as $1k in each of these ten 10%+ ‘Safer’ Dividend stocks. This gain estimate was subject to average volatility 11% 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".
Six of Eleven Sectors Are Represented By The 40 10%+ ‘Safer’ DiviDogs Of December
Sectors represented by the forty 10%+ ‘Safer’ Dividends numbered six of eleven. Those 40 stocks showed positive annual returns and margins of cash to cover dividends by this screen as of November 28.
The 10%+ ‘Safer’ Dividend sector representation broke-out, thus: Financial Services (12); Real Estate (12); Basic Materials (5); Energy (7); Industrials (3); Consumer Cyclical (1); Communication Services (0); Consumer Defensive (0); Healthcare (0);Technology (0); Utilities (0).
Four the six sectors were represented in the top ten by yield.
40 of 90 10%+ ‘Safer’ Dividend Dog Firms
Periodic Safety Inspection
A previous article discussed the attributes of the top 30 10%+Dividend stocks culled by yield from this list of 90.
You see grouped below a tinted list showing 40 that passed the 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 sagging prices.
Corporate financial success, however, is easily re-prioritized by boards of directors making company policy cancelling or varying the payout of dividends to shareholders. Some may not cut or reduce dividends but carefully regulate their annual pay outs in slow business periods.
This article contends that adequate cash flow is strong justification for a company to sustain annual dividend pay increases to shareholders.
Note that many of these top dividend payers have adjusted their dividends lower recently, including:
Arlington Asset Inv (AI) in September 2015;
Orchid Island Capital (ORC) in July, 2015;
TICC Capital (TICC) in March, 2017;
KCAP Financial (KCAP) in January, 2017;
BP Prudhoe Bay (BPT) in October, 2017, among others.
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 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 A (11) 13.54% 1 yr. Average Upside And A (12) 22.83% Net Gain From Top 30 December 10%+ ‘Safer’ Dividend Stocks
Top stocks on the 10%+ ‘Safer’ Dividend list were graphed above to compare relative strengths by dividend and price as of November 28, 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 not applied (n/a).
Analysts projected a 18.7% lower dividend from $10K invested as $1k in the top ten December 10%+ ‘Safer’ Dividends while aggregate single share price was projected to increase by 11.2% 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 were found to provide the more accurate estimates.
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 Bargains From Lowest Priced, High Yielding, 10%+ ‘Safer’ DiviDogs
Ten "Safer" 10%+ ‘Safer’ DiviDog firms with the biggest yields November 28 per YCharts data ranked themselves as follows:
Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend Top Yield 10%+Dividend Stocks, Will Deliver (13) 27.35% VS. (14) 29.04% Net Gains from All Ten by December, 2018
$5000 invested as $1k in each of the five lowest priced stocks in the ten 10%+ ‘Safer’ Dividends pack by yield were determined by analyst 1 year targets to deliver 5.84% LESS gain than $5,000 invested as $.5k in all ten. The seventh lowest priced 10%+ ‘Safer’ DiviDog, CNX Coal Resources (CNXC) showed the best broker-calculated net-gain of 57.04% per their target estimates.
Lowest priced five 10%+ ‘Safer’ Dividends as of November 28 were: KCAP Financial (KCAP); CBL & Associates (CBL); TICC Capital (TICC); Capitala Finance (CPTA); Alcentra Capital (ABDC); Orchid Island Capital (ORC), with prices ranging from $3.38 to $9.73.
Higher priced five 10%+ ‘Safer’ Dividends as of November 28 were: Arlington Asset Investment (AI); CNX Coal Resources (CNXC); Two Harbors Investment (TWO); SunCoke Energy Partners (SXCP); BP Prudhoe Bay (BPT), with prices ranging from $9.72 to $19.10. The big high priced 10%+ ‘Safer’ Dividend stock pulled through!
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 10%+ ‘Safer’ DiviDogs dividend stock research process. These were not recommendations.
Three or more of these 10%+ ‘Safer’ DiviDogs 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 the other 52 DOTWII now accumulating returns on The Dividend Dog Catcher premium site. A Dogs of the Week III (DC Safari to Sweet Success) portfolio launched September 8. Click here to subscribe or get more information.
Make investing fun again. See your underdog in print!
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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: dailymail.co.uk
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 covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.