11 'Safer' Dividends From 101 10%+ Yield WallStars Glow At  End-O-December

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Includes: ARCC, CCR, CHMI, CIM, CPTA, CTL, NCMI, PNNT, RC, SNP, USDP
by: Fredrik Arnold
Summary

WallStars all show positive broker target-price-upsides. 101 stocks displayed 10%+ forward-yield, $5.00+ prices, and $100M+ market caps. Free cash flow yields greater than dividend yields 12/31/18 distinguished 11 'safer' dividend payers.

Broker target-estimated End-O-December top-ten 'safer' net-gains ranged 14.7-59.0% from CIM, CHMI, ARCC, RC, CCR, PNNT, NCMI, SNP, CTL, and topped by CPTA.

Top ten 10%+ 'safer' dividend WallStar annual yields ranged 10.49-14.26% from NCMI, CHMI, CIM, PNNT, RC, SNP, CCR, USDP, CPTA, and topped by CTL. Their free cash flow yields ranged 14.87-53.98%.

Besides safety margin, 10%+ yield 'safer' dividend WallStars also reported payout ratios, total annual returns, dividend growth, and P/E ratios to further bolster their dividend support. Positive total annual returns narrowed the list of 101 to 22.

Analyst one-year targets determined that ten highest-yield 10%+ 'safer' dividend WallStars could produce 0.64% more gain from $5k invested in the lowest-priced five than from $5k in all ten. Thus, low-priced "little" stocks barely led the 'safer' WallStar pack this time.

Source: YCharts

Actionable Conclusions (1-10): Brokers Forecast Ten 10%+ Yield Equities To Gain 24.9% To 74.8% By End-O-December 2019

Nine of the ten top 10%+ 'safer' dividend WallStars by yield (shaded in the chart above) were verified as being among the top ten gainers for the coming year based on analyst one-year target prices. Thus, the yield strategy for this group, as graded by analyst estimates for this month, proved 90% accurate.

Projections based on dividends from $1,000 invested in the highest yielding stocks and the aggregate one-year analyst mean target prices of these stocks as reported by YCharts provided the data points. Note: one-year target prices from single analysts were not applied (n/a). Data revealed ten probable profit-generating trades to End-O-December 2019:

Capitala Finance Corp. (CPTA) netted $590.82 based on the median of target price estimates from seven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 6% under the market as a whole.

CenturyLink Inc. (CTL) netted $554.92 based on dividends plus a median target price from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 6% under the market as a whole.

China Petroleum & Chemical (SNP) netted $533.37 based on estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 57% more than the market as a whole.

National CineMedia Inc. (NCMI) netted $427.53 based on a median target estimate from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 28% less than the market as a whole.

PennantPark Investment (PNNT) netted $411.71 based on dividends plus a median target price estimate from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 15% more than the market as a whole.

CONSOL Coal Resources LP (CCR) netted $409.01 based on a median target estimate from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 5% less than the market as a whole.

Ready Capital Corp. (RC) netted $324.00 based on dividends plus a median target price estimate from eight analysts minus broker fees. The Beta number showed this estimate subject to volatility 35% less than the market as a whole.

Ares Capital Corp. (ARCC) netted $261.13 based on a median target price set by seventeen analysts plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 39% less than the market as a whole.

Cherry Hill Mortgage Investment Corp. (CHMI) netted $203.49 based on estimates from three analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 70% less than the market as a whole.

Chimera Investment Corp. (CIM) netted $147.23 based on a median target price set by seven analysts plus estimated dividends less broker fees. The Beta number showed this estimate subject to volatility 49% less than the market as a whole.

Average net gain in dividend and price was 38.63% on $10k invested as $1k in each of these ten 10%+ yield 'safer' dividend WallStars. This gain estimate was subject to average volatility of 20% less than the market as a whole.

Source: michelle-lifewithdogs.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".

Seven of Eleven Sectors Are Represented By Eleven End-O-December 'Safer' 10%+ Yield WallStars

Sectors represented by the eleven 10%+ yield 'safer' dividend WallStars counted seven of eleven. Those 11 stocks showed positive annual returns and positive margins of cash to December 31, 2019.

The 10%+ yield 'safer' dividend sector representation broke-out, thus: Communication Services (1), Financial Services (3), Industrials (1), Basic Materials (1), Energy (1), Real Estate (3), Consumer Cyclical (1), Consumer Defensive (0), Healthcare (0), Technology (0), Utilities (0).

All seven sectors were represented in the top ten by yield.

11 of 101 10%+ Yield 'Safer' Dividend WallStars

Source: YCharts

Periodic Safety Inspection

A previous article discussed the attributes of the 10%+ yield WallStars on the master list of 101. Now, you see grouped below a tinted list showing 11 that passed the 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 boldface "Safety Margin" column. The total returns column screened out the sagging prices in 79 of the 101.

Source: YCharts

Corporate financial gains, however, are easily re-directed by boards of directors making company policy cancelling or varying the payout of dividends to shareholders. Some may not cut or reduce dividends but carefully regulate their annual payouts in slow business periods.

This article contends that adequate cash flow is strong justification for a company to sustain annual dividend pay increases to shareholders.

Note that many of these top dividend payers have adjusted their dividends lower recently, including:

Capitala Finance in October 2017.

Ready Capital in October 2016.

PennantPark in March 2017.

Cherry Hill Mortgage Investment Corp. in June 2015, among others.

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 reach beyond yield to select reliable payout stocks. Positive results in all five columns after the dividend ratio is a solid financial signal.

Actionable Conclusions: (11) Top Ten 10%+ Yield 'Safer' Dividend WallStars Showed 5.5% To 47% Upsides To End-O-December 2019; (12) Lowest Downside Of All Was 0%.

Source: YCharts

To quantify top dog rankings, analyst mean price target estimates provide 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 Revealed Little Bargains From Lowest Priced, 10%+ Yielding 'Safer' Dividend WallStars

Ten 10%+ yield 'safer' dividend WallStars with the biggest yields December 31 per YCharts data ranked themselves as follows:

Source: YCharts

Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten 'Safer' Dividend Top Yield 10%+ Yield WallStars, Will Deliver (13) 37.44% Vs. (14) 37.2% Net Gains from All Ten by End-O-December 2019

Source: YCharts

$5,000 invested as $1k in each of the five lowest-priced stocks in the ten 10%+ yield 'safer' dividends WallStar pack were determined by analyst one-year targets to deliver 0.64% more net gain than $5,000 invested in all ten. The third lowest priced 'safer' WallStar, Capitala Finance Corp., showed the best broker-calculated net-gain of 59.08% per their target estimates.

Source: YCharts

Lowest priced five 10%+ yield 'safer' dividend WallStars as of December 31 were: PennantPark Investment Corp., National CineMedia Inc., Capitala Finance Corp., USD Partners LP (USDP), Ready Capital Corp., with prices ranging from $6.37 to $13.83.

Higher priced five 10%+ yield 'safer' dividend WallStars as of December 31 were CenturyLink Inc., CONSOL Coal Resources LP, Cherry Hill Mortgage Investment Corp., Chimera Investment Corp., and China Petroleum & Chemical Corp., with prices ranging from $15.15 to $70.60. The little low-priced 10%+ 'safer' dividend WallStars barely captured the lead this month.

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. 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.

Stocks listed above were suggested only as possible starting points for your safest 10%+ 'safer' DiviDogs 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, and analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo from: michelle-lifewithdogs.blogspot.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.