Your 24 'Safer' Dividend Dogs Of The Dow For December From Dividend Dogcatcher

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Includes: AAPL, BA, CAT, CSCO, CVX, DWDP, HD, INTC, JPM, MMM, MSFT, PFE, PG, UTX, V, VZ, WBA
by: Fredrik Arnold
Summary

Twenty-four of 30 Dow Industrial Index stocks were tagged as "safer" for dividends because they showed positive one-year returns and free cash-flow yields greater than their dividend yields 12/5/18.

Broker target-estimated top ten 'safer' dividend net-gains from JPM, MSFT, V, HD, BA, CVX, UTX, CAT, AAPL, & DWDP, ranged 15.78%-33.8%. One -3.2% loser was P&G.

Top 10 "safer" dividend Dow annual yields ranged 2.51% to 4.15% from INTC; CAT; MMM; DWDP; CSCO; JPM; PFE; PG; CVX; VZ. Their free cash flow yields ranged 2.79%-9.35%.

Besides safety margin, Dow 'safer' dividend dogs also reported payout ratios (lower is better), total annual returns, dividend growth, and p/e ratios to further document their dividend support. Total annual returns narrowed the "Safer" dividend Dow list of 30 to 26 by extracting four with negative returns.

Analyst one-year targets indicated that ten highest yield 'safer' dividend Dow stocks could accumulate 3.19% LESS gain from $5k invested in the lowest priced five than from $5K invested in all ten. Big stocks continued leading 'Safer' dividend Dow dogs.

Source: YCharts.com

Actionable Conclusions (1-10): Analysts Target Net Gains of 14.84%-48.87% Come October, 2019 For Top 10 Dow Index Stocks

Five of the ten top 'safer' dividend Dow dogs by yield (shaded in the chart above) were among the top ten gainers for the coming year based on analyst 1-year target prices. Thus October estimates were alleged to be 50% accurate by brokers.

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 October, 2019 were:

DowDuPont (DWDP) was estimated to net $338.12 based on the median of price estimates from twenty-one analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 50% above the market as a whole.

Apple Inc (AAPL) netted $282.39 based on the median of target estimates from forty-three analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 20% more than the market as a whole.

Caterpillar Inc (CAT) netted $256.99, based on dividends plus the median of target price estimates from twenty-seven analysts, less broker fees. The Beta number showed this estimate subject to volatility 61% over the market as a whole.

United Technologies (UTX) netted $250.29 based on estimates from nineteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 7% over the market as a whole.

Chevron (CVX) netted $233.67 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 13% more than the market as a whole.

Boeing Co (BA) netted $222.74 based on the median of target prices set by twenty-two analysts, plus estimated dividends, less broker fees. The Beta number showed this estimate subject to volatility 30% over the market as a whole.

The Home Depot Inc (HD) netted $170.07 based on a median of the target estimate from thirty-threer analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 26% more than the market as a whole.

Visa Inc (V) was shown to net $166.53 based on the median of estimates from thirty-eight analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 11% above the market as a whole.

Microsoft Corp (MSFT) netted $166.53 based on the median of target price estimates from thirty-eight analysts , plus projected annual dividends, less broker fees. The Beta number showed this estimate subject to volatility 11% more than the market as a whole.

JPMorgan Chase & Co (JPM) netted $157.84 based on the median of target estimates from twenty-nine analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 10% morethan the market as a whole.

Average net gain in dividend and price was 22.37% on $10k invested as $1k in each of these ten Dow "safer" dividend stocks. This gain estimate was subject to average volatility 25% above the market as a whole.

Source: YCharts.com

Actionable Conclusion (11): (Bear Alert) Analysts Predicted One 'Safer' Dow Dividend Dog To Lose 3.22% By December, 2019

The probable losing trade revealed by YCharts for 2019 was:

Procter & Gamble Co (P&G) projected a $32.23 loss based on dividend plus a median target price estimate from twenty-four analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 63% less than the market as a whole.

Source: mobiledevicesalon.blogspot.com

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".

Nine of Eleven Sectors Show "Safer" Dividends For The Dow Index

Nine sectors are represented by the 24 "Safer" members of the Dow Industrials Index. Those 24 stocks showed positive annual returns and margins of cash to cover dividends by this screen as of December 5.

The "safer" dividend Dow index representation by sector, broke-out, thus: Communication services (1); Energy (1), Consumer Defensive (2); Healthcare (3); Financial Services (4); Technology (4); Basic Materials (1); Industrials (4); Consumer Cyclical (4).

The first eight of the nine sectors listed above were represented in the top ten Dow 'safer' dividend group by yield.

Sectors not represented (by Dow index design) were real estate and utilities.

24 of 30 Dow Firms Reported "Safer" Dividends

Source: YCharts.com

Periodic Safety Inspection

A previous article discussed the attributes of all 30 Dow stocks.

You see grouped below the tinted list documenting 24 that passed the Dow 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 four with negative projections.

Source: YCharts.com

Financial priorities however are easily revised by boards of directors who amend company policies cancelling or varying the payout of dividends to shareholders. For example, Cisco Systems joined the Dow Industrial index in 2009 but only began paying quarterly dividends as of May, 2011.

Venerable Procter & Gamble (PG) has not cut or reduced dividends but has carefully regulated their annual increases in slow business periods. Newbie, Walgreens Boots Alliance (WBA) replaces GE at the bottom of the list based on annual returns on equity. Yet another potential drowning swimmer has joined the Dow.

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 when appearing in all five columns after the annual yield are remarkable solid financial signals.

How Dow 'Safer' Dividend Vs. Price Results Could Get These Dogs Back to A Normal "Fair Trade" Price For Investors

Source: YCharts.com

The charts above show the current dividend amount and the second chart adjusts share price to produce a yield (from $1K invested) to exceed the single share price of each stock. As you can see, only Cisco, Intel, Pfizer, and Verizon prices are currently within $14 of closing the gap between share price and dividend from $1k invested.

To quantify top dog rankings, analyst mean price target estimates provided 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 Among Lowest Priced Highest Yield "Safer" Dividend Dow Stocks Of December

Ten "Safer" dividend Dow firms with the biggest yields December 5 per YCharts data ranked themselves by yield as follows:

Source: YCharts.com

Actionable Conclusions: Analysts Estimated 5 Lowest Priced, of Ten "Safer" Dividend Dow Index Dogs (12) To Deliver 12.64% VS. (13) 13.06% Net Gains from All 10 by December, 2019

Source: YCharts.com

$5000 invested as $1k in each of the five lowest priced stocks in the "safe" ten Dow Index pack by yield were determined by analyst 1 year targets to deliver 3.19% LESS gain than $5,000 invested as $.5k in all ten. The fourth lowest priced "safer" dividend Dow stock, DowDuPont Inc (DWDP) showed the best analyst-guessed net gain of 33.81% per 1-year target estimates.

Source: YCharts.com

Lowest priced five "safer" dividend Dow stocks as of December 5 were: Pfizer (PFE); Cisco Systems (CSCO); Intel (INTC); DowDuPont Inc. (DWDP); Verizon Communications (VZ), with prices ranging from $45.14 to $58.09.

Higher priced five "Safer" Dividend Dow Index dogs as of December 5 were: Procter & Gamble (PG); JPMorgan Chase & Co (JPM); Chevron (CVX); Caterpillar Inc (CAT); 3M (MMM), with prices ranging from $93.31 to $202.20. High price big dogs still rule the Dow!

This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed in his book, 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 those 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.

Stocks listed above were suggested only as possible starting points for your safest "Safer" Dow Index dog dividend stock research process. These were not recommendations.

Always remember: Root for the Underdog. Mention your most or least favorite stock in the comments below and make it eligible for the next FA FoFa/Ro write-up.

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: mobiledevicesalon.blogspot.com

Disclosure: I am/we are long CISCO, INTC, PFE. 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.