Seeking Alpha

41 'Safer' Dividend 10%+ Yield Stocks Jump For January

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Includes: ABDC, AI, BKEP, BPT, CBL, CCR, CPTA, DLNG, MCC, MDLY, ORC, OXSQ, PTMN, SDLP, SXCP
by: Fredrik Arnold
Summary

41 of 95 10%+ dividend stocks were tagged as "safer" for dividends because they showed positive one-year returns and free cash flow yields greater than their dividend yields as of 12/28/17.

Broker target-estimated January top ten net 'safer' gains ranged 32.9%-63.75% from SXCP, NS, UNIT, CCLP, CCR, NSH, MMLP, CMFN, DLNG, and were topped by CPTA.

Top ten 10%+ ‘safer’ dividend annual yields ranged 12.57% to 18.52% from MCC; BPT; CCR; SXCP; CPTA, TICC; CBL; DLNG; ORC, and topped by AI. Their free cash-flow yields ranged 15.54%-75.56%.

Besides safety margin, 10%+ ‘safer’ dividends also reported payout ratios, total annual returns, dividend growth, and p/e ratios to further document their dividend backing. Total annual returns narrowed the 10%+ ‘Safer’DiviDogs list of 95 to 85.

Analyst one-year targets alleged that ten highest yield 10%+ ‘safer’ dividend stocks should produce 9.75% LESS gain from $5k invested in the lowest-priced five than from $5k in all ten.  Higher priced "big" stocks ruled the pack.

Actionable Conclusions (1-10): Brokers Predicted Top Ten 10%+ ‘Safer’ Dividend Stocks To Net 28.4% To 63.75% By January, 2019

Six 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 yield strategy for this group as graded by analyst estimates for this month proved 60% accurate.

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

Capitala Finance (CPTA) netted $637.53 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 1% less than the market as a whole.

Dynagas LNG Partners (DLNG) netted $505.75 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.

Medley Management (MDLY) netted $430.38, based on dividends plus a median target price estimate from four analysts, minus broker fees. The Beta number showed this estimate subject to volatility 52% more than the market as a whole.

Medley Capital (MCC) netted $402.40 based on dividends plus a median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 23% more than the market as a whole.

CONSOL Coal Resources (CCR) netted $388.50 based on estimates from six analysts plus dividends less broker fees. No Beta number was available for CNXC.

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 estimate subject to volatility 31% less than the market as a whole.

Blueknight Energy (BKEP) netted $374.17, based on dividends plus a median target price estimate from five analysts, less broker fees. The Beta number showed this estimate subject to volatility 14% less than the market as a whole.

SunCoke Energy Partners (SXCP) netted $329.06 based on estimates from three analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 33% more than the market as a whole.

Seadrill Partners (SDLP) netted $311.52 based on a median target estimate from two analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 124% more than the market as a whole.

Arlington Asset Investments (AI) netted $284.71 based on a median target price set by seven analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 6% more than the market as a whole.

Average net gain in dividend and price was 40.29% on $10k invested as $1k in each of these ten 10%+ ‘Safer’ Dividend stocks. This gain estimate was subject to average volatility 23% 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".

Six of Eleven Sectors Are Represented By The 41 10%+ ‘Safer’ DiviDogs For January

Sectors represented by the forty-one 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 December 28.

The 10%+ ‘Safer’ Dividend sector representation broke-out, thus: Financial Services (15); Real Estate (12); Industrials (3); Basic Materials (5); Energy (5); Consumer Cyclical (1); Communication Services (0); Consumer Defensive (0); Healthcare (0);Technology (0); Utilities (0).

Five the six sectors were represented in the top ten by yield.

41 of 95 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 95.

You see grouped below a tinted list showing 41 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.

Four additional columns of financial data, listed after the Safety Margin figures above, reveal payout ratios (lower is better), total annual returns, dividend growth, and p/e ratio 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.

Actionable Conclusions: (11) Top Ten 10%+ 'Safer' Dividends Showed 14.63% To 52.05% Upsides To December, 2018; (22) Lowest Downside From Five Was 6.53%.

To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield metric, analyst mean price target estimates became another tool to dig out bargains.

Yield Metrics Revealed No Bargains From Lowest Priced, High Yielding, 10%+ ‘Safer’ DiviDogs

Ten "Safer" 10%+ ‘Safer’ DiviDog firms with the biggest yields December 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) 26.64% VS. (14) 29.52% Net Gains from All Ten by January, 2019

$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 9.75% LESS gain than $5,000 invested as $.5k in all ten. The fourth lowest priced 10%+ ‘Safer’ DiviDog, Capitala Finance (CPTA) showed the best broker-calculated net-gain of 63.75% per their target estimates.

Lowest priced five 10%+ ‘Safer’ Dividends as of December 28 were: Medley Capital (MCC); CBL & Associates (CBL); TICC Capital (TICC); Capitala Finance (CPTA); Orchid Island Capital (ORC), with prices ranging from $5.09 to $9.41.

Higher priced five 10%+ ‘Safer’ Dividends as of December 28 were: Dynagas LNG Partners (DLNG); Arlington Asset Investment (AI); CONSOL Coal Resources (CCR); SunCoke Energy Partners (SXCP); BP Prudhoe Bay (BPT), with prices ranging from $11.07 to $20.50. The big high priced 10%+ ‘Safer’ Dividend stocks pulled away!

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.

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: snoozerpetproducts.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.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.