Actionable Conclusions (1-10): Analysts Calculated Top Ten 'Safer' Dividend Russell 3000 Stocks Could Net 13.87% to 50.28% Gains By December 2018
Four of the ten top yield "safer" Dividend Russell 3000 dogs (whose names are 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 September proved 40% accurate.
The following probable profit generating trades were flagged by YCharts analytics for December, 2018:
Spark Energy (SPKE) netted $502.81 based on a median target price estimate from four analysts, plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 177% opposite the market as a whole.
Maiden Holdings (MHLD) netted $419.39, based on dividends plus a target price estimate from four analysts, minus broker fees. The Beta number showed this estimate subject to volatility 18% more than the market as a whole.
Medley Management (MDLY) netted $408.57 based on a median target estimate from four analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 18% more than the market as a whole.
Arlington Asset Investment (AI) netted $294.67 based on estimates from seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 6% more than the market as a whole.
BG Staffing (BGSF) netted $269.70 based on a median target price estimate from two analysts, plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 69% less than the market as a whole.
Ellington Residential (EARN) netted $191.64, based on dividends plus a median target price estimate from twnty-nine analysts, less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.
Two Harbors Investment (TWO) netted $186.72 based on a median target price set by nine analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 40% less than the market as a whole.
EPR Properties (EPR) netted $161.12 based on estimates from two analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 70% less than the market as a whole.
Capstead Mortgage (CMO) netted $226.81 based on a mean target estimate from two analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 97% less than the market as a whole.
ONEOK (OKE) netted $138.70 based on dividends plus a median target price estimate from eighteen analysts less broker fees. The Beta number showed this estimate subject to volatility 29% more than the market as a whole.
Average net gain in dividend and price was 27.4% on $10k invested as $1k in each of these ten "safer" dividend stocks. This gain estimate was subject to average volatility 40% 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".
Seven of Eleven Sectors Deliver "Safer" Dividends On The Russell 3000 Index
The 38 "Safer" members of this Index represented just seven of eleven sectors. They showed positive annual returns and adequate margins of cash to cover dividends by this screen as of December 1.
The "safer" divided Russell 3000 sector representation broke-out, thus: Financial Services (5); Real Estate (24); Industrials (2); Consumer Cyclical (2); Utilities (3); Energy (1); Communication Services (1); Basic Materials (0); Consumer Defensive (0); Healthcare (0); Technology (0).
The first two sectors shown in the above list composed the top ten 'safer' dividend Russell 3000 team by yield.
38 of 101 Russell 3000 Firms Showed 'Safer' Dividends
Periodic Safety Inspection
A previous article discussed attributes of 50 top yield constituents of the Russell 3000 Index selected from this master list of 101. You see grouped below the tinted list documenting 38 (out of those 101) 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 one with a sagging price.
Financial successes however are easily re-directed by boards of directors setting company policy cancelling or varying the payout of dividends to shareholders.
Note that many of these top "safer" Russell dividend payers have adjusted their dividends lower recently, including:
Arlington Asset Inv (AI) in September 2015;
Orchid Island Capital (ORC) in July, 2015;
CYS Capital (CYS) in June, 2016, among others.
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 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 became another tool to dig out bargains.
Actionable Conclusions: Wall St. Analysts Expect (12) A 7.82% 1 yr. Average Upside And (13) A 15.23% Net Gain For Top 30 December "Safer" Dividend Russell 3000 Stocks
Top dogs on the Russell 3000 'safer' dividend list were graphed above to compare relative strengths by dividend and price as of December 1, 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 6% lower dividend from $10K invested as $1k in the top ten November "Safer" Dividend Russell 3000 dogs while aggregate single share price was projected to increase by 7.5% in the coming year.
Notice how the price vector is rising toward the falling dividend path. If ever they cross, these "Safer" Russell 3000 dividend dogs will move into overpriced and overbought status like the Dow, S&P500 Aristocrats, and NASDAQ 100 indices. However, they do have more than a $600 gap to cover.
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 Nice Bargains From Lowest Priced Top Ten Yielding "Safer" Dividend Russell 3000 Index Stocks In December
Ten "Safer" Russell 3000 firms with the biggest yields December 1 per YCharts data ranked themselves by yield as follows:
Actionable Conclusions: (14) Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend Russell 3000 Dogs, Will Deliver 22.74% Vs. (15) 17.71% Net Gains from All Ten by December 2018
$5000 invested as $1k in each of the five lowest priced stocks in the "safer" Dividend Russell 3000 Index 10 pack by yield were determined by analyst 1 year targets to deliver 28.44% more gain than $5,000 invested as $.5k in all ten. The very lowest priced "safer" Dividend Russell 3000 dog, Medley Management (MDLY) showed the best analyst augured net gain of 40.86% per their target estimates.
Lowest priced five "safer" Dividend Russell 3000 Index dogs as of December 1 were: Medley Management (MDLY); CYS Investments (CYS); Orchid Island Capital (ORC); Arlington Asset Investment (AI); Ellington Residential (EARN), with prices ranging from $6.55 to $12.71.
Higher priced five "Safer" Dividend Russell 3000 Index dogs as of November 6 were: PennyMac Mortgage Investment (PMT); Two Harbors Investment (TWO); Chimera Investment (CIM); AG Mortgage Investment (MITT); AGNC Investment (AGNC), with prices ranging from $15.74 to $20.02. The low price little Russell 3000 stocks moved into the lead for December.
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 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" Dividend Russell 3000 Index dog dividend stock research process. These were not recommendations.
Three of these "Safer" Dividend Russell 3000 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 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 Sept. 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 Ycharts, Yahoo Finance; analyst mean target price by Thomson/First Call from Yahoo Finance. Dog photo taken from justdogbreeds.com.
Disclosure: I am/we are long BGSF, T.
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.