26 'Safer' Dividend 10%+ Yield Stocks Sparkle For July

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

26 of 82 stocks sporting 10%+ yields were tagged as "safer" for dividends because they showed positive 1-year returns and free cash flow yields greater than their dividend yields on 7/3/18.

Broker target-estimated June top ten net "safer" gains ranged 17.87-87.3% from Vedanta Ltd., Apollo Investment, THL Credit, Sunoco, Sanchez Midstream Partners, CrossAmerica Partners, SunCoke Energy Partners, Golar LNG Partners, Crius Energy, and were topped by Telecom Argentina.

Top ten "Safer" 10%+ Dividend annual yields ranged 12.75-19.87% from Crius Energy, Sunoco, THL Credit, Ellington Residential Mortgage REIT, ORC, Golar LNG Partners, Awilco Drilling, Sanchez Midstream Partners, and Kumba Iron Ore, topped by Vedanta Ltd. Their free cash flow yields ranged from 13.86% to 31.31%.

Besides safety margin, "Safer" 10%+ 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 "Safer" 10%+ list of 82 to 65.

Analyst 1-year targets determined that ten highest-yield "Safer" 10%+ Dividend stocks could produce 10.76% less gain from $5k invested in the lowest-priced five than from $5k in all ten. High-priced "big" stocks led this pack again.

Actionable Conclusions (1-10): Brokers Projected Top Ten "Safer" 10%+ Dividend Stocks To Net 15.59% To 57.03% By July 2019

Six of the ten top "Safer" 10%+ 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 1-year analyst mean target prices of these stocks as reported by YCharts provided the data points. Note: 1-year target prices from single analysts were not applied (n/a). Data revealed ten probable profit-generating trades to July 2019:

Telecom Argentina (NYSE:TEO) netted $873.13 based on estimates from ten analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 8% more than the market as a whole.

Crius Energy (OTC:CRIUF, KWH.UN.TO) netted $647.13 based on a median target estimate from five analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 37% less than the market as a whole.

Golar LNG Partners (NASDAQ:GMLP) netted $480.32 based on dividends plus a median target price estimate from ten analysts, less broker fees. The Beta number showed this estimate subject to volatility 13% less than the market as a whole.

Sanchez Midstream Partners (NYSEMKT:SNMP) netted $461.12 based on a median of target price estimates from four analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 19% opposite the market as a whole.

SunCoke Energy Partners (NYSE:SXCP) netted $458.26 based on dividends plus a median target price estimate from four analysts, minus broker fees. The Beta number showed this estimate subject to volatility 45% more than the market as a whole.

CrossAmerica Partners (NYSE:CAPL) netted $363.80 based on dividends plus a median target price from eight analysts, less broker fees. The Beta number showed this estimate subject to volatility 15% over the market as a whole.

Sunoco (NYSE:SUN) netted $308.64 based on estimates from sixteen analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 34% less than the market as a whole.

THL Credit (NASDAQ:TCRD) netted $242.90 based on a median target estimate from nine analysts, plus dividends less broker fees. The Beta number showed this this estimate subject to volatility 6% more than the market as a whole.

Apollo Investment (OTC:AINV) netted $199.08 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 8% less than the market as a whole.

Vedanta Ltd. (NYSE:VEDL) netted $178.69 based on dividends alone less broker fees. The Beta number showed this estimate subject to volatility 124% more than the market as a whole.

Average net gain in dividend and price was 42.13% on $10k invested as $1k in each of these ten "Safer" 10%+ 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 Twenty-Six July "Safer" Selections

Sectors represented by the twenty-six "Safer" 10%+ Dividend stocks numbered seven of eleven. Those 26 stocks showed positive annual returns and margins of cash to July 3.

The "Safer" 10%+ Dividend sector representation broke out thus: Basic Materials (3), Energy (4), Industrials (1), Real Estate (12), Financial Services (3), Utilities (2), Communication Services (1), Consumer Cyclical (0), Consumer Defensive (0), Healthcare (0), and Technology (0).

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

26 of 82 "Safer" 10%+ Dividend Firms

Periodic Safety Inspection

A previous article discussed the attributes of the 10%+ Dividend stocks on this list of 82.

You see grouped below a tinted list showing 26 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-faced "Safety Margin" column. The total returns column screened out the sagging prices in 17 of the 86.

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 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 top dividend payers have adjusted their dividends lower recently, including:

  • Orchid Island Capital (NYSE:ORC) in March 2018;
  • CYS Investments (NYSE:CYS) in March 2018;
  • Two Harbors Investment (NYSE:TWO) in December 2017; and
  • Dynex Capital (NYSE:DX) in 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 "Safer" 10%+ Dividends Showed 6.8% To 76.8% Upsides To July 2019; (12) Lowest Downside Of Seven Was -6.56%.

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, "Safer" 10%+ Dividend Stocks

Ten "Safer" 10%+ Dividend firms with the biggest yields as of July 3 per YCharts data ranked themselves as follows:

Actionable Conclusions: Analysts Predicted 5 Lowest-Priced of Ten Top Yield "Safer" 10%+ Dividend Stocks Will Deliver (13) 25.52% Vs. (14) 28.6% Net Gains from All Ten by July 2019

$5000 invested as $1k in each of the five lowest-priced stocks in the ten "Safer" 10%+ Dividends pack by yield were determined by analyst 1-year targets to deliver 10.76% less net gain than $5,000 invested as $.5k in all ten. The second-lowest priced "Safer" 10%+ Dividend Stock, Crius Energy, showed the best broker-calculated net gain of 64.71% per their target estimates.

The five lowest-priced five "Safer" 10%+ Dividends as of July 3 are Awilco Drilling (OTCPK:AWLCF), Crius Energy, Orchid Island Capital, THL Credit, and Ellington Residential Mortgage REIT (NYSE:EARN), with prices ranging from $5.31 to $11.07.

Higher priced five "Safer" 10%+ Dividends as of July 3 are Sanchez Midstream Partners, Vedanta Ltd., Kumba Iron Ore (OTCPK:KUMBF), Golar LNG Partners, and Sunoco, with prices ranging from $11.75 to $25.14. The big, high-priced "Safer" 10%+ Dividend stocks kept their 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's also the work analysts got paid big bucks to do.

Caution is advised, however, as analysts are historically 20-80% accurate on the direction of change and about 0-20% accurate on the degree of 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.

The stocks listed above were suggested only as possible starting points for your safest "Safer" 10%+ 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 YCharts. com; Yahoo Finance; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo from: royalbluefrenchies.com

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.