13 Safer 'WallStar' Dividend Utilities Show Promise Through May 2019

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Includes: AY, BIP, BKH, CAFD, CWCO, CWEN, CWEN.A, GXP, LNT, NEP, SBS
by: Fredrik Arnold
Summary

Ten top "safer" WallStar dividend Utilities chosen by broker net-gain targets showed 7.7%-44.6% net as of May 23, 2018.

13 of 64 of these WallStar Utilities stocks were deemed "safer" for dividends because they showed positive one-year returns and free cash flow yields greater than their dividend yields.

The top 10 annual dividend yields ranged from 3.31% to 9.19%. Their free cash flow yields ranged from 3.89% to 21.98%.

Total annual returns narrowed the "safer" Utility list of 64 to 53 by excluding firms reporting negative annual returns.

Analyst one-year targets revealed the 10 highest-yield "safer" Utilities stocks primed to get 40.14% more gains from $5k invested in the lowest-priced five than from $5K invested in all 10.

Actionable Conclusions (1-10): Analysts Cast Top Ten Utilities 'Safer' Dividend Stocks To Net 3.4% to 31.6% Gains To April 2019

Nine of ten top WallStar dividend Utilities (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 yield metrics for this Utilities group, as graded by analyst estimates for this month, proved 90% accurate.

Projections based on estimated dividend returns from $1000 invested in highest yielding "safer" stocks and their aggregate one year analyst median target prices, as reported by YCharts, provided the 2019 data. Note: one year target prices from one analyst were not applied (n/a). Ten probable profit-generating trades to May, 2019 were:

Companhia De Saneamento (SBS) netted $446.03 based on estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 81% over the market as a whole.

Atlantica Yield (AY) netted $260.37, based on dividends plus a median target price estimate from six analysts, less broker fees. The Beta number showed this estimate subject to volatility 1% more than the market as a whole.

Consolidated Water Co (CWCO) netted $251.60 based on dividends plus a median target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 38% less than the market as a whole.

Brookfield Infrastructure (BIP) netted $222.70 based on a median target price estimate from eleven analysts, plus projected annual dividends, less broker fees. The Beta number showed this estimate subject to volatility 4% less than the market as a whole.

NRG Yield (NYLD) netted $132.18 based on dividends plus a median target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 71% more than the market as a whole.

8point3 Energy Partners (CAFD) netted $96.46, based on target price estimates from seven analysts, plus estimated dividends minus broker fees. No Beta number was available for CAFD.

NRG Yield (NYLD.A) netted $68.51 based on dividends plus a median target price estimate from six analysts less broker fees. A Beta number was not available for NYLD.A.

Black Hills (BKH) netted $66.77 based on dividends, plus a median target price estimate from seven analysts, less broker fees. The Beta number showed this estimate subject to volatility 49% less than the market as a whole.

NextEra Energy Partners (NEP) netted $58.33 based on estimated dividends plus a median target price estimate from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 20% more than the market as a whole.

Great Plains Energy (GXP) netted $47.72 based on dividends plus a median target price estimate from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 68% less than the market as a whole.

Average net gain in dividend and price was 16.5% on $10k invested as $1k in each of these ten Utilities "safer" dividend stocks. This gain estimate was subject to average volatility 10% 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."

Five Utilties Industries Show "Safer" Dividends

Five industries constitute the Utilities sector, and all five were represented by the 13 firms whose stocks showed positive annual returns with margins of cash to cover dividends May 23.

The industry representation broke-out, thus: Independent Power Producers (3); Regulated Electric Utilities (5); Diversified Utilities (2); Regulated Water Utilities (2); Regulated Gas Utilities (1).

The first four industries listed above populated the top ten Utilities "safer" dividend team by yield.

13 of 64 Utilities Firms Show "Safer" Dividends

Periodic Safety Inspection

A previous article discussed the attributes of the 64 Top yield Utilities WallStars on this master list.

You see grouped below the tinted list documenting 13 that passed the Utilities dog "safer" check with positive past-year returns and cash flow yield sufficient to cover their anticipated annual dividend yield. The margin of cash excess is shown in the bold face "Safety Margin" column.

Financial fortunes, however, are easily revised by boards of directors setting company policies cancelling or varying the payout of dividends to shareholders. This article contends that adequate cash flow is a strong justification for a company to sustain annual dividend increases to shareholders.

Four additional columns of financial data, listed after the Safety Margin figures above, reveal payout ratios (lower is better), total annual returns, dividend growth levels, and p/e ratios, for each stock. This data is provided to reach beyond yield to select reliable payout stocks.

Total annual returns by positive results narrowed the 64 Utilities dogs list to 54 for this article. Positive results in all five columns after the dividend ratio is remarkable as a solid financial signal.

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 became another tool to dig out bargains.

Yield Metrics Revealed Big Bargains From Lowest Priced Top Ten Yielding "Safer" Dividend Utilities Sector WallStars

Ten "Safe" Dividend Utilities firms with the biggest yields May 23 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend High Yield Utilities Sector Dogs, (11) To Deliver 20.07% VS. (12) 4.32% Net Gains from All Ten by May 2019

$5000 invested as $1k in each of the five lowest priced stocks in the ten "safer" dividend Utilities Sector WallStars by yield were determined by analyst 1 year targets to deliver 40.14% more gain than $5,000 invested as $.5k in all ten. The very lowest priced "safer" dividend Utilities stock, Companhia De Saneamento (SBS) showed the best analyst estimated net gain of 44.6% per their targets.

Lowest priced five "safer" Utilities WallStars as of May 23 were:

Companhia De Saneamento (SBS); 8point3 Energy Partners (CAFD); NRG Yield (NYLD.A); NRG Yield (NYLD); Atlantica Yield (AY), with prices ranging from $7.17 to $19.51.

Higher priced five "Safer" Dividend Utilities WallStars as of May 23 were: Great Plains Energy (GXP); Brookfield Infrastructure (BIP); Alliant Energy (LNT); NextEra Energy Partners (NEP); Black Hills (BKH), with prices ranging from $32.78 to $57.05. The low priced little Utility WallStars took charge.

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" Utilities dog 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 YCharts, Yahoo Finance; analyst mean target price by Thomson/First Call from Yahoo Finance. Dog photo taken from coolbusinessideas.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.