'Safer Dividend Picks From Barron's 10 For 2019 And Kiplinger's 12 Forever Stocks

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Includes: AAPL, AMGN, AMZN, BAC, BLK, CAT, CVX, DAL, GOOGL, JNJ, JPM, MMM, MO, O
by: Fredrik Arnold
Summary

The December 17 issue of Barron's featured "10 favorite picks for the year ahead." While Kiplinger Today December 21 proclaimed "12 Stocks You Should Never Sell." This shows 'safer' picks.

Of the 22 equities featured by those publications, 17 achieved 'safer' dividend status by showing positive annual returns and free cash flow yields greater than their dividend yields.

The 'safer' top analyst-target-augured NET-GAIN ten from Barron's/Kiplinger's lists were AMZN, AAPL, BAC, DAL, MO, CVX, CT, COOCL, BLK, & JPM; six from Barron's, three from Kiplinger, one from both.

Top-ten 'safer' dividend YIELDS ranged 2.821%-6.57% from JNJ, DAL, CAT, MMM, AMGN, BLK, JPM, O, CVX, and were led by MO. Their free cash flow yields ranged 3.01%-10.64%.

$5k invested in the lowest-priced five top-yield amalgamated Barron's/Kiplinger lists produced 11.81% more net gain than from the same investment in all ten.

'Safer' Dividend Barron's/Kiplinger Selections

At year end, Barron's features a list of 10 top picks for the coming year. The December 17 list caught my dogcatcher eye because all but one were dividend payers. And I had already featured picks by Bloomberg and Fortune in other articles. When Kiplinger Today focused on Forever stocks online December 21 this article was born.

Lately, readers and other contributors have questioned the intent, purpose, validity, and usefulness of my various stock lists. Here's a case where a tradition is established to verify that any list of stocks in which most pay dividends is fair game for doggish analysis.

Below are the top ten 'safer' dividends chosen equities blessed by Barron's December 17 and the dozen stocks to hold forever advocated by Kiplinger revealed December 21. Of course, Amazon (NASDAQ:AMZN) and Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) dividends will always be safe because they pay none. They can't pay less.

Source: YCharts

Actionable Conclusions (1-10): Brokers Predicted 32.48% To 55.81% Net Gains From Top Ten 'Safer' Dividend Barron's 10 2019 Favorites Vs. Kiplinger 12 Forever Picks

Six of these ten top 'safer' Barron's/Kiplinger stocks were from Barron's, three were Kiplinger, and one was listed in both.

The following probable profit-generating trades were identified by estimated dividend returns from $1,000 invested in each highest yielding stock. The dividend along with aggregate one-year analyst median target prices, as reported by YCharts, created the 2018-2019 data. Ten probable profit-generating trades projected to December 21, 2019, were:

Amazon.com Inc. was projected to net $558.11 based on no dividends just the median of target prices from forty-five analysts, less broker fees. The Beta number showed this estimate subject to volatility 70% more than the market as a whole.

Apple Inc. (AAPL) was projected to net $471.59 based on dividends plus a median target upside estimated from forty-four analysts, less broker fees. The Beta number showed this estimate subject to volatility 20% over the market as a whole.

Bank of America Corporation (BAC) was projected to net $466.25 based on a median target price estimate from twenty-nine analysts plus annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 27% over the market as a whole.

Delta Air Lines Inc. (DAL) netted $413.66 per the median of twenty-one analysts estimates plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 7% over the market as a whole.

Altria Group Inc. (MO) was projected to net $375.21 based on dividends plus a mean target price estimate from eighteen analysts, less broker fees. The Beta number showed this estimate subject to volatility 7% less than the market as a whole.

Chevron Corp. (CVX) netted $366.84 based on a median target price estimate from twenty-five analysts plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 13% more than the market as a whole.

Caterpillar Inc. (CAT) was projected to net $363.70 based on the median of target price estimates from twenty-seven analysts plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 61% over the market as a whole.

Alphabet Inc. was projected to net $346.15 based on a median of target price estimates from forty-five brokers plus the projected annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 6% over the market as a whole.

BlackRock Inc. (BLK) was projected to net $327.96 based on dividends plus a median target estimate from sixteen brokers, less broker fees. The Beta number showed this estimate subject to volatility 56% more than the market as a whole.

JPMorgan Chase & Co (JPM) was projected to net $324.82 based on a median of target price estimates from twenty-nine brokers plus the projected annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 10% more than the market as a whole.

The average net gain in dividend and price was estimated at 40.14% on $10k invested as $1k in each of these ten stocks. This gain estimate was subject to volatility 33% more than the market as a whole.

Source: chondropaw.com

The Dividend Dogs Rule

The "dog" distinction 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. So, the highest yielding stocks in any collection have become affectionately known as "dogs." More precisely, these are, in fact, best called, "underdogs".

Eight Sectors Were Represented By December Barron's/Kiplinger Listed 'Safer' Dividend Stocks

Of eleven sectors, eight were represented by the 17 stocks with past year positive returns and current cash margins greater than their announced annual dividends. The count of 17 'safer' dividend Barron's/Kiplinger equities by sector showed: consumer defensive (1), energy (1), real estate (1), financial services (3), healthcare (3), industrials (4), technology (2), consumer cyclical 2), basic materials (0), communication services (0), and utilities (0).

Source: YCharts

Periodic Safety Check

A previous article discussed the attributes of the 10 Barron's 2019 Favorites vs. Kiplinger Today's "12 Stocks You Should Never Sell."

You see below the tinted green list that passed the dividend "stress" test. These 17 Barron's/Kiplinger stocks report positive annual returns and sufficient cash flow yield to cover their anticipated dividend yield, the margin of cash flow excess being shown in the boldface "Safety Margin" column.

One of the 22 was disqualified by negative one-year returns; two paid no dividends. Four were discarded with free cash flow yields less than their dividend yields.

Source: YCharts

Corporate cash flow, however, is easily re-directed by any board of directors managing company policy. Directors can cancel or vary the payout of dividends to shareholders. For example, Altria Group Inc., top dog on the list above, cut their quarterly dividend from $0.75 to $0.29 in 2008, raised the Q stipend to $0.32 in 2009 and to $0.34 in 2010. Altria Group Q dividends have since risen annually to their present $0.80 in 2018, where they currently stand.

Three additional columns of reported cash data listed after the safety margin figures on the charts 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 reach beyond yield to select reliable payout stocks. The one-year total returns column above showed one stock exhibiting tumbling returns.

Yield Metrics Uncovered Significant Price Advantages For 5 Low-Price Barron's/Kiplinger 2019 'Safer' Dividend Stocks

Ten 'safer' dividend top Barron's/Kiplinger stocks for December 21 per YCharts data ranked themselves by yield as follows:

Source: YCharts

Ten top 'safer' Barron's/Kiplinger 2019 dividend paying stocks were culled by Yield (dividend/price). Results were verified by Yahoo Finance.

Actionable Conclusions: Analysts Concluded 5 Lowest-Priced of Top Ten High Yield Barron's/ Kiplinger 'Safer' Dividend Stocks Would Deliver (11) 30.56% Vs. (12) 27.33% Net Gains for All Ten by December 2019

Source: YCharts

$5,000 invested as $1k in each of the five lowest priced stocks in the top ten Barron's/Kiplinger 2019 Kennel by yield were predicted by analyst one-year targets to deliver 11.81% more net gain than $5,000 invested as $.5k in each of all ten.

The second lowest priced Delta Air Lines Inc. was projected to deliver the best net gain of 41.37%.

Ten Barron's/Kiplinger 'Safer' Dividend Picks Saw 11.81% More Gain From 5 Highest Yield, Lowest Priced Stocks

Source: YCharts

Lowest priced five Barron's/Kiplinger 'safer' dividend stocks as of December 21 were: Altria Group Inc., Delta Air Lines Inc., Realty Income Corp. (O), JPMorgan Chase & Co., and Chevron Corp., with prices ranging from $49.09 to $104.21.

Higher priced five Barron's/Kiplinger 'safer' dividend stocks as of December 21 were: Caterpillar Inc., Johnson & Johnson (JNJ), Amgen Inc. (AMGN), 3M Co (MMM), and BlackRock Inc., whose prices ranged from $120.07 to $369.16.

This distinction between five low-priced dividend dogs and the general field of ten reflect 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 stocks listed above were suggested only as decent starting points for a Bloomberg 2019 Watchlist 'safer' dividend dog stock purchase/sale research process in late-November 2018. These were not recommendations.

The net gain/loss estimates 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 reference points for your Bloomberg 2019 Watchlist 'safer' dividend stock purchase or sale 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.com; www.indexarb.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo from: chondropaw.com

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.