Barron's Says To Buy MLPs In 2019, Yet Its Best Yield Plays Favor Vodafone

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Includes: AMLP, BP, BTZ, BXP, EPD, HYT, JPS, JRS, KYN, MKHCX, PFF, RQI, SMM, T, VOD
by: Fredrik Arnold
Summary

Barron's January 7 issue presented 11 investment categories where investors can find 2019 yields up to 11%. Barron's put MLPs at the top followed by junk bonds and euro issues.

Top ten net gains from that list challenged Barron's conclusions. They were: MKHCX, T, JRS, SMM, HYT, BXP, KYN, BP, EPD, topped by VOD.

30 top-yield Barron's best showed estimated price target-upsides ranging from 0.52% to 39.52% as of 1/8/19. Only nine of the 38 mentioned were individual stock issues.

38 yields from Barron's best yield plays for 2019 ranged 1.71-11.33% per YCharts and Yahoo Finance 1/8/19 numbers. The top ten were: BTZ, PFF, SMM, AMLP, JPS, RQI, HYT, VOD, JRS, and KYB. To Barron's credit, MLPs have most (3) in the top ten by yield.

$5k invested in the lowest-priced five of Barron's 10 best yield plays showed 13.96%, less net gain than from $5k invested in all ten.

Source: YCharts/Yahoo Finance

Actionable Conclusions (1-10): Analysis Projects 14% To 46.35% Net Gains For Top Ten Barron's Best Yield Plays As Of January 2020

Five of ten top dividend-yielding Barron's best yield plays (tinted gray in the chart above) were among the top ten gainers for the coming year based on one-year target estimates. So, the dog strategy Barron's best yield plays graded out with 50% accuracy.

The following probable profit-generating trades were based on estimated dividend returns from $1,000 invested in each of the highest yielding stocks. Those dividends and their aggregate one-year estimated median target prices created the 2019-2020 data points.

Note: target prices for funds were estimated at 0.58% to 13.3% by the author. Target prices for stocks were based on the median of broker target estimates reported by YCharts. Ten probable profit-generating trades projected to January 8, 2020 were:

Vodafone Group PLC (VOD) was projected to net $463.51 based on a median target price estimate from three analysts combined with projected annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 8% less than the market as a whole.

Enterprise Products Partners (EPD) was projected to net $265.19 based on dividends plus median target price estimates from twenty-four analysts, less broker fees. The Beta number showed this estimate subject to volatility 17% less than the market as a whole.

BP PLC (BP) was projected to net $262.08 based on dividends plus a mean target price estimate from twelve analysts plus dividend, less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.

Kayne Anderson MLP (KYN) was projected to net $226.07 based on dividends plus an annual price gain estimate of +13.3% by the author, less broker fees. The Beta number showed this estimate subject to volatility 3% more than the market as a whole.

Boston Properties, Inc. (BXP) was projected to net $193.54 based on dividends plus mean target price estimates from two analysts, less broker fees. The Beta number showed this estimate subject to volatility 15% less than the market as a whole.

BlackRock Corp High Yield (HYT) was projected to net $192.88 based on dividends plus a mean target price upside estimate of +12.4% from the author, less broker fees. The Beta number showed this estimate subject to volatility 53% less than the market as a whole.

Salient Midstream & MLP (SMM) was projected to net $182.70 based on a median target price estimate of +12.6% by the author combined with projected annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 69% more than the market as a whole.

Nuveen Real Estate Income (JRS) was projected to net $182.22 based on dividends plus a target price estimates of +11.11% by the author, less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.

AT&T Inc. (T) was projected to net $169.26 based on dividends plus the median of target price estimates from twenty-nine analysts, less broker fees. The Beta number showed this estimate subject to volatility 48% less than the market as a whole.

MainStay MacKay HighYield (MKHCX) was projected to net $140.07 based on dividends plus a target price estimate of +10.9% by the author, less broker fees. The Beta number showed this estimate subject to volatility 79% under the market as a whole.

Average net gain in dividend and price was estimated at 22.78% on $10k invested as $1k in each of these ten stocks. This gain estimate was subject to average volatility 20% less than the market as a whole.

Top 30 Barron's Best Yield Plays Represented 6 Of 11 Sectors and all 3 Fund Families and Bonds

The list from Barron's published as of 1/7/19 sorted by yield (dividend/price) calculated from here 1/8/19 for thirty-eight stocks contributed to the various actionable conclusions discussed in this article.

The Barron's best yield plays for 2019 were selected in the context of the recent market sell-off. "Income plays that now look particularly appealing include[d] high dividend stocks in the U.S. and overseas markets, master limited partnerships, junk bonds, and preferred stocks in these sectors." Rather than picking individual stocks, Barron's chose to feature mostly ETFs and closed-end investment companies.

This is a look at Barron's take on income-producing investments. Barron's tanked their eleven categories of investments in order of preference as follows: MLPs, junk bonds, European dividend stocks and funds, U.S. dividend stocks and funds; preferred stock funds, REIT funds, Telecom stocks, municipal bond funds, utility funds, investment-grade bonds, and Treasuries funds. The list as of 1/7/19 provided the subjects for this article. Numeric calculations for the list were made as of 1/8/19 from YCharts and Yahoo Finance data.

Source: thestar.com

The Dividend Dogs Rule

Stocks earned the "dog" moniker by 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 precisely, these are, in fact, best called, "underdogs".

38 Barron's Best Yield Plays

As mentioned, Barron's ranked their eleven categories of investments in order of preference, as follows: MLPs, junk bonds, European dividend stocks and funds, U.S. dividend stocks and funds, preferred stock funds, REIT funds, Telecom stocks, municipal bond funds, utility funds, investment grade bonds, and treasuries funds. Only nine of the 38 mentioned were individual stock issues. The rankings by yield are shown below.

Source: YCharts/Yahoo Finance

Actionable Conclusion (11-20): Dividend Yield Metrics Selected 10 Top Barron's Best Yield Plays

Top ten Barron's best yield plays for 2019, represented seven closed-end investment companies, two ETFs, and one communications services stock.

Tops were the Kayne Anderson MLP/Midstream [1] followed by Nuveen Real Estate Income Fund [2], and Vodafone Group PLC [3].

In the middle of this pack were BlackRock Corp High Yield [4], Cohen & Steers Quality Income Realty Fund, Inc. (RQI) [5], and Nuveen Preferred & Income Securities Fund (NYSE:JPS) [6].

Completing the top ten Barron's list by yield were Alerian MLP ETF (AMLP) [7], Salient Midstream & MLP [8], iShares US Preferred Stock ETF (NYSEARCA:PFF) [9], and BlackRock Credit Allocation Income Trust (BTZ) [10].

Actionable Conclusions: (21-30) Ten Barron's Best Yield Plays Showed 10.91% To 39.52% Upsides, While (31) None Showed A Downside To January 2020

Source: YCharts/Yahoo Finance

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

A 13.98% Disadvantage Was Estimated For Five Highest Yield, Lowest Priced Of the Ten Barron's Best Yield Plays For 2019

Top ten Barron's best yield plays were culled by yield for their monthly update from here. Yield (dividend/price) results verified by Yahoo Finance did the ranking.

Source: YCharts/Yahoo Finance

As noted above, top ten Barron's best yield plays for 2019, represented seven closed-end investment companies, two ETFs, and one communications services stock.

Actionable Conclusions: Analysts Estimated 5 Lowest-Priced Of The Top Ten Highest-Yield Barron's Best (32) Delivering 15.26% Vs. (33) 17.74% Net Gains by All Ten by January 2020

Source: YCharts/Yahoo Finance

$5,000 invested as $1k in each of the five lowest-priced stocks in the top ten Barron's best yield plays for 2019 by yield were predicted by analyst one-year targets to deliver 13.98% less net gain than $5,000 invested as $.5k in each of all ten. The ninth lowest priced Barron's best yield play dividend CEIC, Kayne Anderson MLP/Midstream showed the best author-augured net gain of 46.35%.

Source: YCharts/Yahoo Finance

The five lowest-priced Barron's best yield plays for 2019 were: Nuveen Pref & Income Securities Fund, Salient Midstream & MLP, Nuveen Real Estate Income Fund, BlackRock Corp High Yield, and Alerian MLP ETF, with prices ranging from $8.44 to $9.79.

Five higher-priced Barron's best yield plays for 2019 were: Cohen & Steers Quality Income Realty Fund, Inc., BlackRock Credit Allocation Income Trust, Kayne Anderson MLP/Midstream, Vodafone Group PLC, and iShares US Preferred Stock ETF, whose prices ranged from $10.99 to $35.15.

That distinction between the five low-priced dividend dogs and the general field of ten reflected Michael B. O'Higgins' "basic method" for beating the Dow. The scale of projected gains based on analyst targets added 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. Caution is advised since analysts are historically only 20% to 80% accurate on the direction of change and just 0% to 20% accurate on the degree of change.

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 Champion Dividend dog 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 www.indexarb.com; YCharts.com; finance.yahoo.com; and analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo: thestar.com

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.