10 Top 'Safer' Dividend Aristocrats Yield 3%-4%, With 14%-29% Gains Per June Audit

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Includes: ABBV, CINF, CLX, CVX, DOV, GD, GPC, ITW, JNJ, KMB, LEG, PEP, PG, SWK, WMT
by: Fredrik Arnold

Summary

42 of 53 S&P 500 Dividend Aristocrats stocks were deemed "safer" for dividends because they showed positive one-year returns and free cash flow yields greater than their dividend yields.

One-year broker-estimated top 10 "safer" dividend gains in price and dividends less broker fees ranged from 14.6% to 29.2% for June, and were topped by Stanley Black & Decker.

Top 10 "safer" Dividend Aristocrats' yields ranged from 2.96% to 3.97%. Their free cash flow yields ranged from 3.72% to 9.09%.

Total annual returns narrowed the "safer"  Dividend Aristocrats list of 53 to 46 by eliminating those showing negative returns.

Analyst one-year target estimates revealed that the 10 highest-yield "safer" Dividend Aristocrats would produce 4.53% fewer gains from $5K invested in the lowest-priced five vs. $5K invested in all 10.

Actionable Conclusions (1-10): Brokers Project Top Ten 'Safer' Dividend Aristocrats Stocks to Net 14.62% to 29.22% Gains To June 2019

Five of ten top yield "safer" Dividend Aristocrats (tinted in the chart above) were also in the Top ten gainers for the coming year based on analyst 1 year target prices. Thus the yield selection strategy for this group as graded by analyst estimates proved 50% accurate.

Projections based on estimated 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 June 5, 2019 were:

Stanley Black & Decker (SWK) netted $292.26 based on a median target price set by twenty analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility equal to the market as a whole.

General Dynamics (GD) netted $221.77 based on estimates from twenty analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 17% less than the market as a whole.

Leggett & Platt (LEG) netted $215.13, based on dividends plus a target price estimate from seven analysts, minus broker fees. The Beta number showed this estimate subject to volatility 10% less than the market as a whole.

Johnson & Johnson (JNJ) netted $196.66, based on dividends plus a median target price estimate from twenty-four analysts, less broker fees. The Beta number showed this estimate subject to volatility 27% less than the market as a whole.

Dover (DOV) netted $188.42 based on estimates from eighteen analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 23% more than the market as a whole.

PepsiCo (PEP) netted $171.60 based on a median target estimate from twenty-six analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 33% less than the market as a whole.

Chevron (CVX) netted $160.48, based on dividends plus a median target price estimate from twenty-three analysts, less broker fees. The Beta number showed this estimate subject to volatility 14% more than the market as a whole.

AbbVie (ABBV) netted $159.36 based on a median target price estimate from twenty-three analysts , plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 62% more than the market as a whole.

Illinois Tool Works (ITW) netted $154.17 based on mean target price estimates from seventeen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 22% more than the market as a whole.

Walmart (WMT) netted $146.15 based on a mean target estimate from thirty-four analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 47% less than the market as a whole.

Average net gain in dividend and price was 19.6% on $10k invested as $1k in each of these ten "safer" Dividend Aristocrats stocks. This gain estimate was subject to average volatility 1% 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 Showed "Safer" Dividends For The S&P Aristocrats Index

Seven sectors were represented by the 42 "Safer" members of the S&P 500 Dividend Aristocrats Index. Those showed positive annual returns and margins of cash to cover dividends by this screen as of June 5.

The "safer" Aristocrats sector representation broke-out, thus: Consumer Defensive (10); Healthcare (5); Energy (1); Consumer Cyclical (5); Financial Services (4); Industrials (12); Basic Materials (5); Communication Services (0); Real Estate (0); Technology (0); Utilities (0).

Five of the seven sectors on the above list composed the top ten Aristocrats 'safer' dividend team by yield.

42 of 53 Aristocrats Firms Showed "Safer" Dividends

Periodic Safety Inspection

A previous article discussed the attributes of the 53 constituents of S&P 500 Dividend Aristocrats Index.

You see grouped below the tinted list documenting 42 that passed the dividend 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 seven with negative returns.

Financial choices, however, are easily adjusted by boards of directors or company policy cancelling or varying the payout of dividends to shareholders. This article contends that adequate cash flow is 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, 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 remarkably 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 metric, analyst mean price target estimates became another tool to dig out bargains.

Yield Metrics Revealed No Bargains From Lowest Priced Top Ten Yielding "Safer" June Aristocrats

Ten "Safer" S&P 500 Dividend Aristocrats firms with the biggest yields June 5 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten 'Safer' Dividend Aristocrats, To (12) Deliver 12.72% VS. (13) 13.33% Net Gains from All Ten by June 2019

$5000 invested as $1k in each of the five lowest priced stocks in the "safer" Dividend Aristocrats Top Ten by yield were determined by analyst 1 year targets to deliver 4.53% LESS gain than $5,000 invested as $.5k in all ten. The very lowest priced "safer" Dividend Aristocrat, Leggett & Platt (NYSE:LEG) showed the best analyst-augured net gain of 21.51% per the median of eight estimates.

Lowest priced five "safer" Dividend Aristocrats as of June 5 were: Leggett & Platt (LEG); Cincinnati Financial (CINF); Procter & Gamble (PG); Genuine Parts (GPC); AbbVie, Inc. (ABBV), with prices ranging from $42.36 to $99.24.

Higher priced five "Safer" Dividend Aristocrats Index dogs as of June 5 were: PepsiCo (PEP); Kimberly-Clark (KMB); Clorox (CLX); Johnson & Johnson (JNJ); Chevron (CVX), with prices ranging from $100.21 to $122.73. The high-priced (big) Aristocrats took June honors.

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" Dividend Aristocrats 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 YCharts, Yahoo Finance; analyst mean target price by Thomson/First Call from Yahoo Finance. Dog photo taken from thetimes.co.uk.

Disclosure: I am/we are long T.

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.