'Safer' Dividend NASDAQ Dogs Hunt 26.5%-59.4% Net Gains Per Broker December Targets

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Includes: AAPL, AMAT, AVGO, GILD, KLAC, LRCX, MAR, MCHP, MXIM, PAYX, PEP, STX, SWKS, TXN, VOD, WDC
by: Fredrik Arnold
Summary

46of 54 NASDAQ 100 Index dividends were presumed "safer" because they showed positive one-year returns and free cash flow yields greater than dividend yields as of 12/14/18.

Broker target-estimated top ten 'safer' dividend net-gains ranged 26.5%-59.4%, by MAR, GILD, AAPL, KLAC, MCHP, VOD, SWKS, LRCX, AMAT, & WDC.

Top 10 "safer" dividend NASDAQ yields ranged 3.26%-6.54% from PEP; TXN; KLAC; PAYX; GILD; MXIM; AVGO; WDC; VOD; STX. Their free cash flow yields ranged 3.42%-23.46%.

Besides safety margin, NASDAQ dividend stocks also reported payout ratios (lower is better), total annual returns, dividend growth, and p/e ratios. Total annual returns narrowed the Index list from 54 to 50 by disqualifying stocks reporting negative returns.

Analyst one-year targets revealed ten highest yield "safer" dividend NASDAQ stocks that could average 28.56% more gain from $5k invested in the lowest priced five than from $5K invested in all ten. Low price little dogs dominated the December pack.

Actionable Conclusions (1-10): Brokers Forecast Top Ten NASDAQ "Safer" Dividend Stocks to Net 26.5% to 59.4% Gains By December, 2019

Four of the ten top yield "safer" Dividend NASDAQ stocks (with name backgrounds tinted grey in the list above) were scattered in with the top ten gainers for the coming year based on analyst 1 year target prices. Thus the yield strategy for this group as graded by analyst estimates for October turned out 40% accurate.

Projections based on estimated dividends from $1000 invested in the 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 December 14, 2019 were:

Western Digital Corp (WDC) netted $594.23, based on dividends plus a median target price estimate from thirty-one analysts, less broker fees. The Beta number showed this estimate subject to volatility 15% more than the market as a whole.

Applied Materials Inc (AMAT) netted $489.95 based on a median target price set by twenty-five analysts, plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 66% more than the market as a whole.

Lam Research (LRCX) netted $479.59 based on a median target price estimate from twenty-two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 36% more than the market as a whole.

Skyworks Solutions Inc (SWKS) netted $409.80 based on a median target price estimate from twenty-nine analysts , plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 40% less than the market as a whole.

Vodafone Group (VOD) netted $401.02 based on a mean target estimate from three analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 8% less than the market as a whole.

Microchip Technology (MCHP) netted $389.24 based on a median target estimate from twenty-one analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 28% more than the market as a whole.

KLA-Tencor (KLAC) netted $377.61 based on dividends plus a median target price estimate from fifteen analysts less broker fees. The Beta number showed this estimate subject to volatility 59% more than the market as a whole.

Apple Inc (AAPL) netted $336.18 based on dividends plus a median target price estimate from forty-four analysts less broker fees. The Beta number showed this estimate subject to volatility 20% more than the market as a whole.

Gilead Sciences (GILD) netted $327.67, based on dividends plus a median of target price estimates from twenty-six analysts, minus broker fees. The Beta number showed this estimate subject to volatility 1% more than the market as a whole.

Marriott International Inc (MAR) netted $264.97 based on the median of estimates from twenty-seven analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 37% more than the market as a whole.

Average net gain in dividend and price was 40.7% on $10k invested as $1k in each of these ten "safer" dividend NASDAQ 100 stocks. This gain estimate was subject to average volatility 21% more than the market as a whole.

source: flickr.com

The Dividend Dog Rules

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".

46 of 54 NASDAQ 100 Firms Showed "Safer" Dividends

source: YCharts

Periodic Safety Inspection

A previous article discussed the attributes of the 54 constituents of this master dividend NASDAQ100 Index list.

You see collected below the tinted list documenting 46 of 54 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 4 with sagging price returns.

source: YCharts

Financial priorities however are easily re-adjusted by boards of directors revising 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 to shareholders.

Three additional columns of financial data, listed after the Safety Margin figures above, reveal payout ratios (lower is better), total annual returns, and dividend growth levels for each stock. This data is provided to reach beyond yield to select reliable payout stocks. Positive results in all five columns after the dividend ratio send a remarkably solid financial signal.

Six of Eleven Sectors Show "Safer" Dividend NASDAQ Stocks

Six Morningstar sectors of eleven are represented by the 46 "Safer" members of the NASDAQ 100 Index. They showed positive annual returns and margins of cash to cover their dividends as December 14.

The "safer" dividend NASDAQ 100 Index sector representation broke-out, thus: Technology (25); Communication Services (2); Healthcare (2); Industrials (7); Consumer Defensive (2); Consumer Cyclical (8); Basic Materials (0); Energy (0); Financial Services (0); Real Estate (0); Utilities (0).

The first five industries listed above made the top ten 'safer' dividend NASDAQ 100 Index team by yield.

To quantify top dog rankings, analyst median price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metric, analyst median price target estimates became another tool to dig out bargains.

Yield Metrics Identified Bargains From Lowest Priced 5 of Top 10 Top Yielding 'Safer' Dividend NASDAQ Stocks

Ten "Safer" Dividend NASDAQ firms with the biggest yields December 14 per YCharts data ranked themselves by yield as follows:

source: YCharts

Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend NASDAQ Stocks, Could Likely (11) Deliver 32.94% VS. (12) 25.62% Net Gains from All Tenby December, 2019

source: YCharts

$5000 invested as $1k in each of the five lowest priced stocks in the "safer" NASDAQ 100 Index 10 pack by yield were determined by analyst 1 year targets to deliver 28.56% more gain than $5,000 invested as $.5k in all ten. The third lowest priced "safer" NASDAQ 100 stock, Broadcom Inc (AVGO) showed the best analyst-predicted net gain of 59.42% per target estimates.

source: YCharts

Lowest priced five "safer" Dividend NASDAQ 100 Index stocks as of December 14 were: Vodafone Group (VOD); Seagate Technology (STX); Western Digital Corp (WDC); Maxim Integrated Products Inc (MXIM); Gilead Sciences Inc (GILD), with prices ranging from $20.12 to $65.57.

Higher priced five 'Safer' Dividend NASDAQ 100 Index dogs as of December 14 were: Paychex (PAYX); KLA-Tencor Corp (KLAC); Texas Instruments Inc (TXN); PepsiCo Inc (PEP); Broadcom Inc AVGO), with prices ranging from 65.90 to $254.83. The little, low-priced NASDAQ 100 'Safer' Dividend contingent stayed on top.

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.

Stocks listed above were suggested only as possible starting points for your safest "Safer" Dividend NASDAQ 100 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: flickr.com

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.