Here's 23 'Safer' Dividend Dogs Of The Dow To June 2019 Per Broker Targets

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Includes: CSCO, CVX, DIS, DWDP, GE, JNJ, MCD, MMM, PFE, PG, TRV, UTX, VZ, WMT
by: Fredrik Arnold

Summary

23 of 30 Dow Industrial Index stocks were tagged as "safer" for dividends because they showed positive one-year returns and free cash flow yields greater than their dividend yields 6/1/18.

Broker target-estimated top ten net 'safer' dividend stock net gains from PG, CSCO, CVX, UTX, WMT, MCD, VZ, DIS, JNJ, and DWDP, ranged 12.46%-21.65% and were led by DWDP.

Top 10 "safer" dividend Dow annual yields ranged 2.38% to 4.94% from TRV; WMT; MCD; MMM; JNJ; CSCO; CVX; PFE; PG; VZ. Their free cash flow yields ranged 2.85%-9.7%.

Besides safety margin, Dow 'safer' dividend dogs also reported payout ratios (lower is better), total annual returns, dividend growth, and p/e ratios to further document their dividend support. Total annual returns narrowed the "Safer" dividend Dow list of 30 to 26 by extracting four negative contributors.

Analyst one-year targets predicted that ten highest yield 'safer' dividend Dow stocks should accumulate 5.84% LESS gain from $5k invested in the lowest priced five than from $5K invested in all ten. Big stocks widened their 'Safer' dividend Dow lead.

Actionable Conclusions (1-10): Analysts Alleged Net Gains of 12.46%-21.65% For Ten "Safer" Dividend Dow Index Stocks

Seven of the ten top 'safer' dividend Dow dogs by yield (shaded in the chart above) were among the top ten gainers for the coming year based on analyst 1-year target prices. Thus, June estimates showed as 70% accurate.

Projections based on estimated dividend returns from $1,000 invested in each of 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 June 2019 were:

DowDuPont (DWDP) netted $216.51 based on estimates from 26 analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 30% over the market as a whole.

Johnson & Johnson (JNJ) netted $199.03 based on a mean target estimate from 34 analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 27% more than the market as a whole.

Walt Disney (DIS) netted $195.58 based on a median target price set by 24 analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 28% over the market as a whole.

Verizon Communications (VZ) netted 190.21 based on a mean target estimate from 32 analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 37% more than the market as a whole.

McDonald's (MCD) netted $175.28, based on dividends plus a median target price estimate from 33 analysts, less broker fees. The Beta number showed this estimate subject to volatility 37% under the market as a whole.

Walmart (WMT) netted $169.06 based on a median target price estimate from 34 analysts, plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 47% less than the market as a whole.

United Technologies (UTX) netted $153.99 based on estimates from 19 analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 10% over the market as a whole.

Chevron (CVX) netted $153.99 based on dividends plus a median target price estimate from 23 analysts less broker fees. The Beta number showed this estimate subject to volatility 14% more than the market as a whole.

Cisco Systems (CSCO) netted $149.80 based on a median target estimate from 23 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 14% more than the market as a whole.

Procter & Gamble (PG) netted $124.57 based on a median target price set by 25 analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 42% less than the market as a whole.

Average net gain in dividend and price was 17.1% on $10k invested as $1k in each of these ten Dow "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".

Seven of Eleven Sectors Show "Safer" Dividends For The Dow Index

Nine sectors are represented by the 23 "Safer" members of the Dow Industrials Index. Those 23 stocks showed positive annual returns and margins of cash to cover dividends by this screen as of June 1.

The "safer" dividend Dow index representation by sector, broke out, thus: Communication services (1); Consumer Defensive (2); Healthcare (3); Energy (1), Technology (4); Industrials (4); Consumer Cyclical (4); Financial Services (3); Basic Materials (1).

The first eight of the nine sectors listed were represented by the top ten Dow 'safer' dividend team by yield. Sectors not represented (by Dow design) were real estate and utilities.

23 of 30 Dow Firms With "Safer" Dividends

Periodic Safety Inspection

A previous article discussed the attributes of all 30 Dow stocks.

You see grouped below the tinted list documenting 23 that passed the Dow 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 four with sagging prices.

Financial priorities however are easily revised by boards of directors amending company policy cancelling or varying the payout of dividends to shareholders. For example, Cisco Systems joined the Dow Industrial index in 2009 but only began paying quarterly dividends as of as of May 2011.

Venerable Procter & Gamble (PG) has not cut or reduced dividends but has carefully regulated their annual increases in slow business periods. In January 2018, General Electric (GE) cut its dividend in half but had not been on the 'safe' list for years.

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. Positive results when appearing in all five columns after the annual yield are remarkable solid financial signals.

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 No Bargains From Lowest Priced Highest Yield "Safer" Dividend Dow Stocks

Ten "Safer" dividend Dow firms with the biggest yields June 1 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: Analysts Imagined 5 Lowest Priced, of Ten "Safer" Dividend High Yield Dow Index Dogs (12) Delivering 12.77% Vs. (13) 13.56% Net Gains from All Ten by June 2019

$5,000 invested as $1k in each of the five lowest priced stocks in the "safe" ten Dow Index pack by yield were determined by analyst 1 year targets to deliver 5.84% LESS gain than $5,000 invested as $.5k in all ten. The sixth lowest priced "safer" dividend Dow dog, Johnson & Johnson (JNJ) showed the best analyst-guessed net gain of 19.9% per 1-year target estimates.

Lowest priced five "safer" dividend Dow stocks as of June 1 were: Pfizer (PFE); Cisco Systems (CSCO); Verizon Communications (VZ); Procter & Gamble (PG); Walmart (WMT), with prices ranging from $36.25 to $82.99.

Higher priced five "Safer" Dividend Dow Index dogs as of June 1 were: Johnson & Johnson (JNJ); Chevron (CVX); Travelers Companies (TRV); McDonald's (MCD); 3M (MMM), with prices ranging from $121.26 to $199.59. High price big dogs reigned supreme again!

This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed in his book, 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's also the work analysts got paid those 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" Dow Index 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 www.ycharts.com; www.finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo from: marketintelligencecenter.com

Disclosure: I am/we are long CSCO, GE, PFE, INTC.

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.