Actionable Conclusions (1-10): Brokers Estimate Top Ten 'Safer' Dividend S&P 500 Stocks Could Net 27.99% to 48.7% Gains By October 2019
Three of the ten tops-by-yield 'safer' Dividend S&P 500 (tinted in the chart above) were among the top ten gainers for the coming year based on analyst 1 year targets. Thus, the dog strategy for this group, as graded by analyst estimates for this month, proved 30% accurate.
Projections based on estimated dividend returns from $1,000 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. The ten probable profit-generating trades projected to October 25, 2019, by that reckoning were:
WestRock Co. (WRK) netted $487.10 based on a median target price set by sixteen analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 62% more than the market as a whole.
Valero Energy Corp. (VLO) netted $465.47 based on a mean target estimate from nineteen analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 3% more than the market as a whole.
MetLife Inc. (MET) netted $341.64 based on estimates from nineteen analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 23% more than the market as a whole.
AbbVie Inc. (ABBV) netted $338.62 based on a median target price estimate from twenty-one analysts, plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 54% more than the market as a whole.
Prudential Financial (PRU) netted $308.50 based on a median target estimate from eighteen analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 48% more than the market as a whole.
LyondellBasell Industries (LYB) netted $308,48, based on dividends plus a target price estimate from nineteen analysts, minus broker fees. The Beta number showed this estimate subject to volatility 13% more than the market as a whole.
Chevron (CVX) netted $304.43, 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 7% more than the market as a whole.
Eaton Corp. PLC (ETN) netted $300.50 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 36% more than the market as a whole.
Seagate Technology PLC (STX) netted $280.63 based on a median target price estimates from twenty-seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 70% more than the market as a whole.
Invesco (IVZ) netted $279.91 based on estimates from seventeen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 65% more than the market as a whole.
Average net gain in dividend and price was 34.15% on $10k invested as $1k in each of these ten "safer" Dividend S&P 500 Index stocks. This gain estimate was subject to average volatility 38% 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".
Ten Of Eleven Sectors Were Represented In This 'Safer' Dividend S&P 500 Collection
Of eleven sectors. ten are represented by the fifty-two "Safer" members of the S&P 500 Index. Those were called 'safer' because they showed positive annual returns and margins of cash to October 25.
The "safer" dividend S&P 500 Index sector representation broke out, thus: Consumer Cyclical (9); Technology (7); Financial Services (10); Real Estate (11); Consumer Defensive (4); Healthcare (2); Basic Materials (1); Communication Services (1); Energy (2); Industrials (5); Utilities (0).
The first six sectors listed above composed the top ten 'safer' dividend S&P 500 Index by yield.
52 of 95 S&P 500 Firms With "Safer" Dividends
Periodic Safety Inspection
You see grouped below the tinted list documenting 52 that passed the dividend "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-nine with sagging returns from the master list of 95.
Corporate financial fortunes, however, are frequently re-prioritized by boards of directors manipulating company policy cancelling or varying the payout of dividends to shareholders. 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 p/e ratios for each stock. This data is provided to reach beyond yield to select reliable payout stocks. Positive results in the five columns after the dividend ratio portend 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 Uncovered Substantial Bargains From Lowest Priced 5 of Top 10 Yielding 'Safer' Dividend S&P 500 Index Stocks
Ten "Safer" Dividend S&P 500 firms with the biggest yields October 25 per YCharts data ranked themselves by yield as follows:
Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend S&P 500 Stocks, (12) Delivering 25.03% Vs. (13) 17.96% Net Gains from All Ten by October 2019
$5,000 invested as $1k in each of the five lowest priced stocks in the "safer" Dividend S&P 500 Index 10 pack by yield were determined by analyst 1 year targets to deliver 39.35% more gain than $5,000 invested as $.5k in all ten. The ninth lowest priced "safer" Dividend S&P 500 equity, AbbVie Inc. (ABBV) showed the best analyst-augured net gain of 33.86% per target estimates.
Lowest priced five 'safer' Dividend S&P 500 Index stocks as of October 25 were: Ford Motor (F); People's United Financial Inc. (PBCT); Invesco (IVZ); Seagate Technology (STX); International Paper Co. (IP), with prices ranging from $8.99 to $43.76.
Higher priced five "Safer" Dividend S&P500 Index stocks as of October 25 were: Ventas (VTR); Altria Group Inc. (MO); Welltower Inc. (WELL); AbbVie Inc. (ABBV); Philip Morris Intl (PM), with prices ranging from $56.90 to $90.63. Again, the little, low-priced, S&P 500 Index stocks soundly prevailed.
This distinction between five low priced dividend equities 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 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 S&P 500 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 in Yahoo Finance. Dog photo from: funnypicturesgallery.net
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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.