'Safer' Dividend 24 Of 150 With 5-50 Annual Hikes Show Positive Returns And Covering Cash Flow To 2020

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Includes: ADM, APD, EPR, MCY, MPW, NHI, O, OLP, ORI, PBFX, RPM, TGT, VZ, WLKP, WPC
by: Fredrik Arnold
Summary

Champion stocks report 25+ annual-dividend increases; Contenders show 10-24; Challengers do 5-9. WallStars all show >.01% price-target upsides.

24 of 150 CCC WallStars were deemed 'safer' showing positive annual-returns, and cash-flow yields >dividend yields 1/4/19. Their price target-upsides ranged 1.39%-33.95%.

Top 10 'Safer' Dividend CCC WallStar annual-yields ranged 4.25% to 9.57% from O; VZ; MCY; NHI; MPW; WPC; EPR; WLKP; OLP; PBFX. Their free cash-flow yields ranged 5.18%-56.19%.

Besides safety margin, 'safer' dividend CCC stocks also reported payout ratios,  (lower is better), total annual returns, dividend growth, and p/e ratios to validate their dividend support. One hundred-ten CCC WallStars  showing negative annual returns were disqualified in this "safer" screening process.

Analyst one-year targets revealed that $5k invested in the lowest priced five of ten top "safer" CCC WallStar stocks projected 44.99% more gain than from $5K invested in all ten.

Actionable Conclusions (1-10): Brokers Say Ten WallStar CCC 'Safer' Dividend Stocks Could Net 15.47% to 27.8% Gains To January, 2020

Five top yield "safer" dividend CCC dogs (tinted gray in the chart above) were among these top ten gainers for the coming year based on analyst one-year target prices. Thus the yield-based strategy for this group, as graded by analyst estimates, for January proved 50% accurate.

The following probable profit-generating trades were distinguished by estimated dividend returns from $1000 invested in each of the highest yielding stocks. Those dividends and their aggregate one year analyst-estimated median target prices, as reported by YCharts, created the 2018-19 data points. Note: one year target prices by single analysts were not applied. Ten probable profit-generating trades projected to January 4, 2020 were:

Archer-Daniels Midland Co (ADM) netted $278.01 based on target price estimates from fourteen analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 1% less than the market as a whole.

RPM International Inc (RPM) netted $263.96 based on dividends plus price estimates from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 34% more than the market as a whole.

Mercury General Corp (MCY) netted $244.52 based on target price 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.

Target Corp (TGT) netted $243.89 based on dividends plus a median target price estimate from twenty-six analysts less broker fees. The Beta number showed this estimate subject to volatility 28% less than the market as a whole.

Westlake Chemical Partners (WLKP) netted $242.65 based on a target price from six analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 25% less than the market as a whole.

PBF Logistics LP (PBFX) netted $192.70 based on median target price estimate from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.

Old Republic International (ORI) netted $180.58 based on dividends and the median of price estimates from two analysts less broker fees. The Beta number showed this estimate subject to volatility 5% more than the market as a whole.

Air Products & Chemicals Inc (APD) netted $177.73 based on estimates from twenty-two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 7% less than the market as a whole.

One Liberty Properties Inc (OLP) netted $176.41, based on dividends plus upside estimates from two analysts, with broker fees subtracted. The Beta number showed this estimate subject to volatility 27% less than the market as a whole.

EPR Properties (EPR) was found to net $154.69 per the median of estimates from ten analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 56% less than the market as a whole.

Average net gain in dividend and price was 21.55% on $1k invested in each of these ten "Safer" WallStar CCC Stocks. This gain estimate was subject to average volatility 19% less than the market as a whole.

Source: wallpapersin4k.org

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."

Safer Dividend January CCC WallStars

The late David Fish's Dividend Champion, Dividend Challenger, and Dividend Contender Index members listed as of 12/31/18 were paired with annual dividends and prices posted as of 1/4/19 on YCharts. This work is now maintained by Justin Law on the Drip Investing website. Results from that data charted below and screened for "safer" supporting annual returns and cash flow yields produced the actionable conclusions in this article.

Nine of Eleven Sectors Were Represented In The 24 "Safer" Wall Star Dividend CCC List

All but two of the eleven Morningstar sectors were represented by the set of 24 CCC firms showing positive annual returns and whose dividends were backed by adequate cash as of January 4. The sector representation broke out as follows: Energy (1); Real Estate (7); Basic Materials (3); Financial Services (4); Communication Services (1); Utilities (2); Consumer Defensive (2); Technology (1); Consumer Cyclical (3); Healthcare (0); Industrials (0).

Top ten Champion, Contender & Challenger "safer" dogs showing positive returns and the safety margin of cash to cover dividends by this screen included the first six sectors on the list above.

Finding CCC WallStars With "Safer" Dividends

Source: YCharts

Periodic Safety Inspection

A previous article discussed the attributes of 90 of these 150 on the WallStar CCC stocks master list from which the 24 with "Safer" dividends were culled. You see grouped below the list that passed the "safety" check with positive annual returns plus free cash flow yield enough to cover their estimated dividend yield.

Source: YCharts

Corporate financial priorities however are easily redirected by a board of directors promoting 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.

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 is remarkable as a solid financial signal.

To quantify top dog rankings, analyst median 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 Uncovered Good Gains From 5 Lowest Priced "Safer" Dividend High Yield CCC WallStars To 2020

Ten "Safer" Dividend CCC WallStar firms with the biggest yields December 31 per YCharts January 4 data lined up as follows:

Source: YCharts

Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend CCC WallStar Dogs, (12) Deliver 18.28% VS. (13) 12.61% Net Gains from All Ten by January, 2020

Source: YCharts

$5000 invested as $1k in each of the five lowest priced stocks in the 'safer' ten dividend CCC WallStar pack by yield were determined by analyst 1 year targets to deliver 44.99% more net gain than $5,000 invested as $.5k in all ten. The fifth lowest priced 'safer' dividend CCC WallStar, The Mercury General Corp (MCY) showed the best net gain of 24.45% per analyst targets.

Source: YCharts

Lowest priced five "safer" dividend CCC WallStars as of January 4 were: Medical Properties Trust Inc (MPW); PBF Logistics LP (PBFX); Westlake Chemical Partners LP (WLKP); One Liberty Properties Inc (OLP); Mercury General Corp (MCY), with prices ranging from $16.05 to $50.62.

Higher priced five "safer" dividend CCC WallStars as of January 4 were: Verizon Communications Inc (VZ); Realty Income Corp (O); EPR Properties (EPR); W.P. Carey Inc (WPC); National Health Investors Inc (NHI), with prices ranging from $56.36 to $76.25.

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. 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 "safer" dividend Champions dog 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 show photo from: wallpapersin4k.org

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.