Meet Wall Street's 28 Favorite 'Safer' Dividend Stocks For February

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Includes: ALDW, ATTO, BGSF, CIM, CYS, IVR, MITT, MTGE, MVC, NLY, PEGI, QIWI, SCM, TPVG, TWO, VOD
by: Fredrik Arnold
Summary

Wall Street believes in picking prices for most equities. My articles regularly include Broker 1yr. Target estimates for dividend stocks. This consolidated ranking was suggested by a reader, Minnesota72.

28 of 81 Wall St Favored 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.

Broker target-estimated top ten net 'safer' gains ranged 20%-53% from MVC, BGSF, MTGE, TWO; QIWI, PEGI, CYS,SCM, VOD, and were topped by ATTO.

Top ten Wall St Favorite ‘Safer’ Dividend annual yields ranged 10.21% to 15.06% from ALDW; IVR; MITT; TPVG; NLY; SCM; MTGE; CIM, TWO, and topped by CYS. Their free cash-flow yields ranged 12.08%-101.21%.

Analyst one-year targets revealed that ten highest yield Wall St Favorite ‘Safer’ Dividend stocks could produce 23.38% LESS gain from $5k invested all ten.  The higher priced "big" dog stocks truly ruled this pack.

Actionable Conclusions (1-10): Brokers Predicted Top Ten Wall St Favorite ‘Safer’ Dividend Stocks To Net 20.5% to 53.13% Gains To February, 2019

Four of ten top Wall St. Favorite ‘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-based "dog" strategy for this group, as graded by analyst estimates for this month, proved 40% accurate.

Projections based on estimated changes in dividend returns from $1000 invested in the thirty highest yielding stocks and their aggregate one year analyst median target prices, as reported by YCharts, created the 2018-19 data points. Note: one year target prices by lone analysts were not applied. Ten probable profit-generating trades projected to February, 2019 were:

Atento (ATTO) was forecast to net $531.27 based on estimates from seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 13% opposite the market as a whole.

Vodafone Group (VOD) netted $361.60 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 21% less than the market as a whole.

Stellus Capital Investment (SCM) netted $314.98 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 49% less than the market as a whole.

CYS Investments (CYS) netted $305.30, based on dividends plus a median target price estimate from five analysts, less broker fees. The Beta number showed this estimate subject to volatility 33% more than the market as a whole.

Pattern Energy Group (PEGI) netted $303.30, based on dividends plus a median target price estimate from ten analysts, minus broker fees. The Beta number showed this estimate subject to volatility 12% less than the market as a whole.

QIWI (QIWI) netted $277.82 based on a median target estimate from eleven analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 202% more than the market as a whole.

Two Harbors Investment (TWO) netted $254.95 based on dividends plus a median target price estimate from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 61% less than the market as a whole.

MTGE Investment (MTGE) netted $254.85 based on a median target estimate from five analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 73% less than the market as a whole.

BG Staffing (BGSF) netted $262.76 based on estimates from two analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 69% less than the market as a whole.

MVC Capital (MVC) netted $205.07 based on mean target price estimates from three analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 34% less than the market as a whole.

Average net gain in dividend and price was 30.26% on $10k invested as $1k in each of these ten Wall St. Favorite ‘Safer’ Dividend stocks. This gain estimate was subject to average volatility 21% 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 Are Represented By The 28 Wall St Favorite ‘Safer’ Dividend Dogs For February

Sectors represented by the 28 Wall St Favorite ‘Safer’ Dividend stock were seven out of eleven. Those 28 stocks showed positive annual returns and margins of cash to cover dividends by this screen as of January 5.

The Wall St Favorite ‘Safer’ Dividend sector representation broke-out, thus: Real Estate (9); Financial Services (7); Energy (4); Utilities (3); Industrials (3); Basic Materials (1); Communication Services (1); Consumer Defensive (0); Consumer Cyclical (0); Healthcare (0); Technology (0).

Seven of the nine sectors were represented in that top ten.

28 of 81 Wall St. Favorites Show ‘Safer’ Dividends

Periodic Safety Inspection

A previous article discussed the attributes of the top 70 Wall St Favorite Dividend stocks culled by yield from this list of 81.

You see grouped below a tinted list showing 28 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 none with sagging prices.

Corporate financial results, however, are easily re-directed 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 Wall St Favorites have cut their dividends lower recently, including:

CYS Investments (CYS) in June 2016;

Two Harbors (TWO) pays variably since December, 2009 (its $0.47 recent Q dividend as the second lowest since 2009);

Chimera Investment (CIM) pays variably since December, 2007;

MTGE Investment (MTGE) pays variably since September 2011;

Annaly Capital Management (NLY) pays variably since December, 1997; along with 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 became another tool to dig out bargains.

Dog Metrics Revealed No Bargains From Lowest Priced, High Yielding, Wall St Favorite ‘Safer’ DiviDogs

Ten Wall St Favorite ‘Safer’ DiviDog firms with the biggest yields February 1 per YCharts data ranked themselves as follows:

Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend Wall St Favorite Stocks, (13) Will Deliver 13.71% VS. (14) 17.89% Net Gains from All Ten by February, 2019

$5000 invested as $1k in each of the five lowest priced stocks in the ten Wall St. Favorite ‘Safer’ Dividends pack by yield were determined by analyst 1 year targets to deliver 23.38% LESS gain than $5,000 invested as $.5k in all ten. The sixth lowest priced Wall St Favorite ‘Safer’ DiviDog, Invesco Mortgage Capital (IVR) showed the best broker-calculated net-gain of 31.50% per their target estimates.

Lowest priced five Wall St Favorite ‘Safer’ Dividends as of February 1 were: CYS Investments (CYS); Annaly Capital Management (NLY); Stellus Capital Investment (SCM); TriplePoint Venture Growth (TPVG); SunCoke Energy PartnersTwo Harbors Investment (TWO) with prices ranging from $6.64 to $14.73.

Higher priced five Wall St Favorite ‘Safer’ Dividends as of February 1 were: Invesco Mortgage Capital (IVR); Alon USA Partners (ALDW); Chimera Investment (CIM); MTGE Investment (MTGE); AG Mortgage Investment (MITT), with prices ranging from $16.15 to $17.26. The bigger high-priced Wall St Favorite ‘Safer’ Dividend stocks won-out.

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 Wall St Favorite ‘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: affordableartfair.com

Disclosure: I am/we are long BGSF. 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.