27 'Safer' Dividend 10%+Yield Stocks Grow In June

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Includes: AINV, AWLCF, CAPL, CYS, DX, EARN, GMLP, KUMBF, ORC, SNMP, SUN, SXCP, TCRD, TEO, TWO, VEDL
by: Fredrik Arnold

Summary

27 of 74 stocks sporting 10%+yields 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 6/1/18.

Broker target-estimated June top ten net 'safer' gains ranged 15.5-57% from DX, VEDL, AINV, SUN, TCRD, SNMP, CAPL, SXCP, GMLP, and were topped by TEO.

Top ten 10%+‘Safer’ Dividend annual-yields ranged 12.14-17.63% from CAPL, SUN, ANH, EARN, AWLCF, TCRD, ORC, GMLP, SNMP, KUMBF, topped by VEDL. Their free cash-flow yields ranged 12.45-50.25%.

Besides safety margin, 10%+‘Safer’ Dividend stocks also reported payout ratios, total annual returns, dividend growth, and P/E ratios to further validate their dividend support. Positive total annual returns narrowed the 10%+‘Safer’ list of 74 to 62.

Analyst one-year targets calculated that ten highest yield 10%+‘Safer’ Dividend stocks could produce 19.12% less gain from $5k invested in the lowest-priced five than from $5k in all ten. High priced "big" stocks led this pack.

Actionable Conclusions (1-10): Brokers Predicted Top Ten 10%+ ‘Safer’ Dividend Stocks To Net 15.59% To 57.03% By June 2019

Six of the ten top 10%+‘Safer’ Dividend Stocks 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.

Projections based on dividends from $1000 invested in the highest yielding stocks and the aggregate one-year analyst mean target prices of these stocks as reported by YCharts provided the data points. Note: one-year target prices from single analysts were not applied (n/a). Data revealed ten probable profit-generating trades to May 2019:

Telecom Argentina (TEO) netted $570.29 based on estimates from ten analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 16% less than the market as a whole.

Golar LNG Partners (GMLP) netted $528.88 based on dividends plus a median target price estimate from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 16% less than the market as a whole.

SunCoke Energy Partners (SXCP) netted $410.42, based on dividends plus a median target price estimate from four analysts, minus broker fees. The Beta number showed this estimate subject to volatility 40% more than the market as a whole.

CrossAmerica Partners (CAPL) netted $380.00 based on dividends plus a median target price from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 14% over the market as a whole.

Sanchez Midstream Partners (SNMP) netted $376.02 based on a median of target price estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 19% opposite the market as a whole.

THL Credit (TCRD) netted $291.22 based on a median target estimate from nine analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 4% more than the market as a whole.

Sunoco (SUN) netted $270.65 based on estimates from seventeen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 36% less than the market as a whole.

Apollo Investment (AINV) netted $199.51 based on a median target price set by twelve analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 7% less than the market as a whole.

Vedanta (VEDL) netted $156.27, based on dividends alone, less broker fees. The Beta number showed this estimate subject to volatility 123% more than the market as a whole.

Dynex Capital (DX) netted $155.93 based on a median target estimate from four analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 37% less than the market as a whole.

Average net gain in dividend and price was 33.39% on $10k invested as $1k in each of these ten 10%+ ‘Safer’ Dividend stocks. This gain estimate was subject to average volatility 14% 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 Twenty-seven June 'Safer' Selections

Sectors represented by the twenty-seven 10%+ ‘Safer’ Dividend stocks numbered six of eleven. Those 27 stocks showed positive annual returns and margins of cash to June 1.

The 10%+ ‘Safer’ Dividend sector representation broke out, thus: Basic Materials (4); Energy (4); Industrials (2); Real Estate (13); Financial Services (3); Communication Services (1); Consumer Cyclical (0); Consumer Defensive (0); Healthcare (0);Technology (0); Utilities (0).

The first five of those six sectors represented the top ten by yield.

27 of 74 10%+ ‘Safer’ Dividend Firms

Periodic Safety Inspection

A previous article discussed the attributes of the top 70 10%+Dividend stocks culled by yield from this list of 74.

You see grouped below a tinted list showing 27 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 the sagging prices in 12 of the 74.

Corporate financial gains, however, are easily re-dedicated 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 payouts 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:

Orchid Island Capital (ORC) in March 2018;

CYS Investments (CYS) in March 2018;

Two Harbors Investment (TWO) in December 2017;

Dynex Capital (DX) April 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 1.38% To 48.5% Upsides To June 2019; (12) Lowest Downside Was -8.75%.

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’ Dividend Stocks

Ten "Safer" 10%+ ‘Safer’ Dividend firms with the biggest yields June 1 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) 20.25% Vs. (14) 25.03% Net Gains from All Ten by June 2019

$5000 invested as $1k in each of the five lowest priced stocks in the ten 10%+ ‘Safer’ Dividends pack by yield was determined by analyst 1-year targets to deliver 19.12% less net gain than $5,000 invested as $.5k in all ten. The seventh lowest priced 10%+ ‘Safer’ Dividend Stock, Golar LNG Partners showed the best broker-calculated net gain of 52.89% per their target estimates.

Lowest priced five 10%+ ‘Safer’ Dividends as of June 1 were: Awilco Drilling (OTCPK:AWLCF); Orchid Island Capital; THL Credit; Ellington Residential (EARN); Sanchez Midstream Partners, with prices ranging from $5.90 to $11.75.

Higher priced five 10%+ ‘Safer’ Dividends as of June 1 were Kumba Iron Ore (OTCPK:KUMBF); Vedanta; Golar LNG Partners; Sunoco; CrossAmerica Partners, with prices ranging from $14.45 to $26.75. The big, high priced 10%+ ‘Safer’ Dividend stocks captured the lead this month.

This distinction between five low priced dividend stocks 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. It is 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: pets4homes.co.uk

Disclosure: I am/we are long VEDL.

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 discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.