108 Russell 3000s Sport 43 'Safer' Dividend Dogs For October

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Includes: AGNC, ANH, APLE, ARR, CHMI, CIM, CLNY, CMRE, DX, F, GEO, GLPI, GMRE, IVR, MITT, ORC, PEGI, RC, SIR, WMC
by: Fredrik Arnold

Summary

43 of 108 Russell 3000 Index stocks were deemed "safer" for dividends by showing positive one-year returns and free cash flow yields greater than dividend yields.

The master list of 108 was pre-screened: yields >5%; price >$5; returns >-15%; market cap >$200M 10/4/18.

Broker target estimated net gains for top ten "safer" dividend Russell 3000 dogs ranged 19.69%-50.56% from APLE, GLPI, CHMI, IVR, CIM, MITT, AGNC, DX, WMC, and ORC.

Top 10 "safer" dividend Russell 3000 yields ranged 9.94%-13.83% from RC, SIR, CHMI, IVR, CIM, MITT, AGNC, DX, WMC, and ORC. Free cash flow yields ranged 11.96%-59.76%.

Analyst one-year targets revealed that ten highest-yield "safer" dividend Russell 3000  stocks could produce 14.49% LESS gain from $5k invested in the lowest priced five than from $5k in all ten. The big, high price "safer" dividend stocks kept control in October.

Actionable Conclusions (1-10): Analysts Estimated Top Ten "Safer" Dividend Russell 3000 Stocks Could Net 19.69% to 50.56% Gains By October 2019

Two of the ten top yield "safer" Dividend Russell 3000 dogs were among the top ten gainers for the coming year based on analyst 1-year target prices. Thus, the dog strategy for this group, as graded by analyst estimates, proved 20% accurate.

The following probable profit generating trades were flagged by estimated dividend returns from $1,000 invested in each of the highest yielding stocks and their aggregate one-year analyst median target prices, as reported by YCharts. Note: one-year target prices by lone analysts were not applied. Ten probable profit-generating trades projected to October 4, 2019 were:

Colony Capital (CLNY) netted $505.60 based on dividends plus a median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 35% more than the market as a whole.

Select Income REIT (SIR) netted $455.88, based on dividends plus a target price estimate from four analysts, minus broker fees. The Beta number showed this estimate subject to volatility 25% less than the market as a whole.

Costamare Inc (CMRE) netted $368.43 based on estimates from seven analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 99% more than the market as a whole.

The GEO Group Inc (GEO) netted $265.24 based on a mean target estimate from three analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 19% more than the market as a whole.

Ford Motor (F) netted $247.76 based on estimates from twenty-one analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 14% less than the market as a whole.

Dynex Capital Inc (DX) netted $225.03, based on dividends plus a target price estimate from four analysts, minus broker fees. The Beta number showed this estimate subject to volatility 45% less than the market as a whole.

Pattern Energy Group Inc (PEGI) netted $214.33 based on a median target estimate from fourteen analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.

Global Medical REIT Inc (GMRE) netted $198.16 based on dividends plus a median target price estimate from six analysts, less broker fees. The Beta number showed this estimate subject to volatility 1550% opposite the market as a whole.

Gaming and Leisure Properties (GLPI) netted $196.94 based on a median target price estimate from twelve analysts, plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 45% less than the market as a whole.

Apple Hospitality REIT Inc (APLE) netted $196.93 based on a median target price estimate from twelve analysts, plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 45% under the market as a whole.

Average net gain in dividend and price was 28.7% on $10k invested as $1k in each of these ten "safer" dividend stocks. This gain estimate was subject to average volatility 75% opposite the market as a whole (thanks to GMRE's huge market opposed beta).

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 Delivered "Safer" Dividends For The Russell 3000

The 43 "safer" members of this Index represented six of eleven sectors. They showed positive annual returns and adequate margins of cash to cover dividends by this screen as of October 4.

The "safer" dividend Russell 3000 sector representation broke-out, thus: Real Estate (30); Consumer Cyclical (4); Utilities (2); Financial Services (4); Industrials (1); Consumer Defensive (2); Basic Materials (0); Communication Services (0); Energy (0); Healthcare (0); and Technology (0).

The first four sectors shown in the above list composed the top ten "safer" dividend Russell 3000 team by yield.

43 of 108 Russell 3000 Dogs Showed "Safer" Dividends

Periodic Safety Inspection

A previous article discussed attributes of 50 top yield constituents of the Russell 3000 Index selected from this master list of 108. You see grouped below the tinted list documenting 43 (out of those 108) 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 twenty-eight with sagging profits.

Financial priorities, however, are frequently re-directed by boards of directors setting company policy cancelling or varying the payout of dividends to shareholders.

Note that many of these top "safer" Russell dividend WallStar payers have adjusted their dividends lower recently, including:

Orchid Island Capital (ORC) in July 2015, February 2018, April 2018, and September, 2018; Anworth Mortgage Asset Corp. (ANH) in June 2018; ARMOUR Residential REIT (ARR) in March and April 2016, January 2017, among others.

This article contends that adequate cash flow is strong justification for a company to sustain annual dividend increases to shareholders.

Three 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 PE ratios for each stock. This data is provided to reach beyond yield to select reliable payout stocks. Positive results in those first five columns after the dividend ratio sends 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 "dog" 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" Dividend Russell 3000 Index Dogs For October

Ten "safer" Russell 3000 WallStars with the biggest yields October 4 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend Russell 3000 WallStars, Will (11) Deliver 11.10% Vs. (12) 12.27% By All 10 Come August 2019

$5,000 invested as $1k in each of the five lowest priced stocks in the "safer" Dividend Russell 3000 ten by yield were determined by analyst 1-year targets to deliver 14.49% LESS gain than $5,000 invested as $.5k in all ten. The tenth lowest priced "safer" Dividend Russell (SIR) showed the best analyst-augured net gain of 45.59% per their target estimates.

Lowest priced five "safer" Dividend Russell 3000 stocks as of October 4 were: Dynex Capital Inc.; Orchid Island Capital; Western Asset Mortgage Capital Corp. (WMC); Invesco Mortgage Capital Inc. (IVR); Ready Capital Corp. (RC), with prices ranging from $6.04 to $16.09.

Higher priced five "Safer" Dividend October 4 were: AG Mortgage Investment Trust Inc. (MITT); Chimera Investment Corp. (CIM); Cherry Hill Mortgage Investment Corp. (CHMI); AGNC Investment Corp. (AGNC); Select Income REIT, with prices ranging from $17.57 to $18.66. The high price big Russell 3000 WallStars triumph again in October.

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. It's 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 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 Russell 3000 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: dogwallpapers.net

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.