51 Technology 'Safer' Dividend WallStars For August

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Includes: AVGO, AVX, CSCO, INTC, ITRN, KLAC, KLIC, LRCX, MGIC, MXIM, QCOM, STX, TEL, TSM, TYPE, WDC, WSO
by: Fredrik Arnold
Summary

WallStars show positive broker target price upsides. Top "safer" dividend Technology WallStar, Western Digital, showed 51.55% gains. Top ten averaged 27% per Broker estimates plus dividends. All leaders signaled oversold.

51 of 77 Technology Sector WallStars were tagged "safer" for dividends because they showed positive one-year returns and free cash flow yields greater than dividend yields as of 8/1/18.

Top 10 "safer" dividend August Technology WallStar yields ranged 2.8% to 4.8% from ITRN; WDC; MXIM; MGIC; CSCO; TSM; AVGO; WSO; QCOM; STX. Their free cash flow yields ranged 3.95%-16.12%.

Besides safety margin, Technology WallStars also reported payout ratios (lower is better), total annual returns, dividend growth, and PE ratios to further gauge their dividend reliability. Total annual returns narrowed the "Safer" Technology list of 77 to 66 by disqualifying firms reporting negative results.

Analyst one-year targets revealed that the lowest priced five of ten highest yield "safer" dividend Technology WallStars would likely produce 26.14% LESS gain from $5k invested than from the same investment in all ten. WallStars all report broker price targets over 1%.

Actionable Conclusion (1-10): Analysts Asserted Top Ten Technology "Safer" Dividend WallStars To Net 16.16% to 51.55% Gains

Four of the ten top dividend Technology WallStars 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 dog strategy for this Technology WallStar list as graded by analyst estimates for this month proved 40% accurate.

Projections based on estimated dividend returns from $1000 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 August, 2019 were:

Western Digital (WDC) netted $515.46 based on estimates from thirty-one analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 4% less than the market as a whole.

Broadcom (AVGO) netted $350.39 based on estimates from thirty-five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 7% less than the market as a whole.

Applied Materials (TYPE) netted $347.52 based on the median of estimates from twenty-six analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 63% more than the market as a whole.

Lam Research (LRCX) netted $288.71 based on dividends plus a median target price estimate from twenty-five analysts less broker fees. The Beta number showed this estimate subject to volatility 42% more than the market as a whole.

Kulicke & Soffa Industries (KLIC) netted $266.43, based on dividend, plus a median target price estimate from four analysts, less broker fees. The Beta number showed this estimate subject to volatility 22% more than the market as a whole.

Magic Software (MGIC) netted $216.47 based on a median target price set by three analysts plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 34% less than the market as a whole.

TE Connectivity (TEL) netted $211.28 based on a median target price estimate from fifteen analysts, plus projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 4% more than the market as a whole.

Cisco Systems (CSCO) netted $182.10 based on mean target price estimates from thirty-one analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 7% more than the market as a whole.

Intel (INTC) netted $170.33, based on dividend, plus a median target price estimate from forty-two analysts, less broker fees. The Beta number showed this estimate subject to volatility equal to than the market as a whole.

KLA-Tencor (KLAC) netted $161.56 based on estimates from sixteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 60% more than the market as a whole.

Average net gain in dividend and price was 27.1% on $10k invested as $1k in each of these ten Technology WallStar "safer" dividend stocks. This gain estimate was subject to average volatility 28% 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".

Thirteen of Nineteen Industries Showed "Safer" Dividend WallStars

Nineteen industries constitute the Technology sector, and thirteen of those were represented by the 51 WallStar firms whose stocks showed positive annual returns and margins of cash to cover dividends by this screen as of August 1.

The industry representation broke-out as follows: Data Storage (2); Semiconductors (15); Electronics Distribution (1); Communication Equipment (8); Software -Application (7); Semiconductor Equipment & Materials (5); Electronic Components (3); Computer Systems (2); Information Technology Services (2); Software - Infrastructure (3); Consumer Electronics (1); Health Information Services (1); Scientific & Technical Instruments (1); Computer Distribution (0); Contract Manufacturers (0); Electronic Gaming & Multimedia (0); Internet Content & Information (0); Semiconductor Memory (0); Solar (0).

The first five industries listed above populated the top ten Technology 'safer' dividend pack by yield.

51 of 77 Technology WallStars Signaled 'Safer' Dividends

Periodic Safety Inspection

A previous article discussed the attributes of the 50 Top yield and 50 top target gainers on this master list.

You see grouped below the tinted list documenting 51 of 77 that passed the Technology 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 success, however, is easily manipulated by boards of directors making company policies cancelling or varying the payout of dividends to shareholders. Concerns about cash reserves for emergencies and unintended patent infringement consequences weigh heavy on the technology leaders. 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 Price/Earnings 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 77 Technology WallStars list to 66 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 provide a "market sentiment" gauge of upside potential. Added to the simple high yield metric, these analyst mean price target estimates became another tool to dig out bargains.

Yield Metrics Revealed No Bargains From Lowest Priced Top Ten "Safe" Dividend Technology Sector WallStars

Ten "Safe" Technology WallStars with the biggest yields August 1 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend High Yield Technology Sector Stocks Will (13) Deliver 12.11% VS. (14) 16.4% Net Gains from All Ten by August, 2019

$5000 invested as $1k in each of the five lowest priced stocks in the "safe" ten Technology Sector pack by yield were determined by analyst 1 year targets to deliver 26.14% LESS gain than $5,000 invested as $.5k in all ten. The eighth lowest priced "safer" dividend Technology WallStar, Western Digital (WDC) showed the best analyst augured net gain of 51.55% per their targets.

Lowest priced five "safer" Technology WallStars as of August 1 were: Magic Software (MGIC); AVX (AVX); Ituran Location & Control (ITRN); Taiwan Semiconductor (TSM); Cisco Systems (CSCO); Seagate Technology (STX), with prices ranging from $8.50 to $53.07.

Higher priced five "Safer" Dividend Technology dogs as of May 25 were: Maxim Integrated Products (MXIM); Qualcomm (QCOM); Western Digital (WDC); Watsco (WSO); Broadcom (AVGO), with prices ranging from $60.72 to $216.80. Big, high price Technology dogs took charge of the August 'Safer' dividend WallStars.

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" Technology 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: dailymail.co.uk

Disclosure: I am/we are long CSCO, 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.