Actionable Conclusion (1-10): Analysts Assert Top Ten 'Safer' Dividend Basic Materials Stocks Could Net 29.56% to 51.35% Gains By October, 2019
Four of the ten top-yield "safer" dividend basic materials stocks (tinted gray 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 for October proved 40% accurate.
The following probable profit-generating trades stood out by estimated dividend returns from $1000 invested in each highest yielding stock. That dividend and the aggregate one year analyst median target price, as reported by YCharts, created the 2018-19 data. Ten probable profit-generating trades projected to October 5, 2019 were:
Schweitzer-Mauduit International (SWM) netted $513.54 based on a target price from two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 32% more than the market as a whole.
Kronos Worldwide Inc. (KRO) netted $503.17 based on a target price from three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 140% more than the market as a whole.
The Chemours Company (CC) netted $464.72 based on a target price from twelve analysts combined with projected annual dividends, less broker fees. The Beta number showed this estimate subject to volatility 162% more than the market as a whole.
Olin (OLN) netted $461.03 based on dividends plus price estimates from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 53% more than the market as a whole.
Huntsman (HUN) netted $418.64 based on dividends plus price estimates from fourteen analysts, less broker fees. The Beta number showed this estimate subject to volatility 170% more than the market as a whole.
Ternium SA (TX) was projected to net $409.03, based on dividends plus the median of fourteen analyst estimates, less broker fees. The Beta number showed this estimate subject to volatility 14% more than the market as a whole.
POSCO (PKX) netted $406.39 per a target price from three analysts combined with projected annual dividends, less broker fees.. The Beta number showed this estimate subject to volatility 26% more than the market as a whole.
Mercer International (MERC) netted $369.79 based on dividends plus price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 66% more than the market as a whole.
SunCoke Energy Partners (SXCP) netted $355.00 based on a target price from four analysts combined with projected annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 38% over the market as a whole.
Norbord Inc (OSB) netted $295.58, based on a target price from nine analysts combined with projected annual dividends, with broker fees subtracted. The Beta number showed this estimate subject to volatility 111% over the market as a whole.
Average net gain in dividend and price was 41.97% on $10k invested as $1k in each of these ten 'Safer' dividend Basic Materials stocks. This gain estimate was subject to average volatility 81% 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."
October 'Safer' Dividend Basic Materials WallStars
Yield (dividend / price) results from here October 5, supplemented by 1 year total returns (Annual) verified by YCharts for thirty-two of sixty stocks in the basic materials sector produced the actionable conclusions discussed here.
Eleven Of Thirteen Industries Were Represented By The 32 'Safer' Dividend Basic Materials 'WallStar' Equities Listed
Of thirteen basic materials sector industries, eleven were represented by the 41 firms that showed positive annual returns and whose dividends were backed by adequate cash as of October 5. The industry representation broke-out, thus: Coal (1); Chemicals (7); Lumber & Wood Production (2); Industrial Metals & Minerals (2); Paper & Paper Products (3); Building Materials (3); Specialty Chemicals (6); Steel (5); Gold (1); Agricultural Inputs (1); Aluminum (1); Copper (0); Silver (0).
Top ten "safer" basic materials stocks showing positive returns and the safety margin of cash to cover dividends as of October 5 represented the first seven industries on the list above.
Basic Materials WallStars With 'Safer' Dividends
Periodic Safety Inspection
A previous article discussed the attributes of the 50 top yield and 50 top target gain Basic Materials WallStars on the above list. Below is the list of 32 resulting from the "safety" check noting positive annual returns and free annual cash flow yield sufficient to cover their estimated annual dividend yield.
Corporate cash flow, however, can always be manipulated by boards of directors who may choose to create company policies 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.
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 show additional methods to reach beyond yield to select reliable payout stocks. Positive results in all five columns after the dividend ratio show a remarkable financial accomplishment.
To quantify top dog rankings, analyst median price target estimates provided 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 Showed No Gains From Lowest Priced 'Safer' Dividend Basic Materials WallStars
Ten "Safer" dividend basic materials WallStars with the biggest yields October 5 per YCharts data ranked themselves by yield as follows:
Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten 'Safer' High Yield Dividend Basic Materials Stocks (11) Delivering 24.4% Vs. (12) 25.13% Net Gains From All Ten By October, 2019
$5000 invested as $1k in each of the five lowest priced stocks in the "safer" ten basic materials pack by yield were determined by analyst 1 year targets to deliver 2.91% LESS net gain than $5,000 invested as $.5k in all ten. The eighth lowest priced "safer" dividend basic materials Schweitzer-Mauduit International Inc (SWM) showed the best net gain of 51.35% per analyst targets.
Lowest priced five "safer" dividend basic materials stocks as of October 5 were: Valhi Inc. (VHI); Cementos Pacasmayo (CPAC); SunCoke Energy Partners (SXCP); Kronos Worldwide Inc (KRO); Westlake Chemical (WLKP), with prices ranging from $2.23 to $25.07.
Higher priced five "Safer" Dividend basic materials WallStars as of October 5 were: Braskem SA (BAK); Norbord Inc (OSB); Schweitzer-Mauduit Intl (SWM); Rio Tinto (RIO); LyondellBasell Industries NV (LYB), with prices ranging from $28.56 to $103.50.
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. 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
Stocks listed above were suggested only as possible starting points for your "safer" dividend "Safer" Dividend Basic Materials 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 analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo from: mydoggie.rocks
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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.