66 'Safer' Dividend Sector-Leading WallStars Show Profits And Cash To Cover Dividends For 2019

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Includes: ARCC, BGSF, CCR, CIM, CPTA, CTL, NCMI, PEGI, PNNT, RC, SNP, SNY, USDP, WLKP
by: Fredrik Arnold
Summary

WallStars all show positive broker target price upsides. Ten top "safer" high yield dividend sector-leading WallStars showed 24.2-47.4% net gains per 1/17/18 broker targets plus dividends.

66 of 198 of these WallStar sector-leading stocks were deemed "safer" for dividends because they showed positive one-year returns (profits) and free cash flow yields higher than their dividend yields.

Top 10 annual "safer" dividend yields ranged 9.61% to 13.51% from ARCC, NCMI, PNNT, RC, CIM, SNP, CCR, CPTA, USDA, CTL. Their free cash flow yields ranged 13.51-50.31%.

Besides safety margin, "safer" dividend sector-leading WallStars also reported payout ratios (lower is better), total annual returns, dividend growth, and P/E ratios, to further bolster their dividend credentials. Total annual returns narrowed the "safer" Utility list of 198 to 109 by excluding firms reporting negative annual returns.

Analyst one-year targets also revealed ten highest yield "safer" sector-leading stocks primed to produce 3.63% more gain from $5k invested in the lowest-priced five than from $5K invested in all ten.

Source: YCharts

Actionable Conclusions (1-10): Analysts Expect Top Ten Sector-Leading "Safer" Dividend WallStars To Net 24.23% to 47.38% Gains To January 2020

Seven of ten top WallStar dividend sector leaders (whose names are 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 metrics for these sector leaders, as graded by analyst estimates for this month, proved 70% accurate.

Projections based on estimated dividend returns from $1,000 invested in highest yielding "safer" stocks and their aggregate one-year analyst median target prices, as reported by YCharts, provided the 2019 data. Note: one-year target prices from single analyst were not applied (n/a). Ten probable profit-generating trades to January 2020 were:

Capitala Finance Corp. (CPTA) netted $473.92 based on dividends plus a median target price estimate from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 6% less than the market as a whole.

CenturyLink Inc. (CTL) netted $450.91 based on estimated dividends plus a median target price estimate from sixteen analysts less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.

BG Staffing Inc. (BGSF) netted $388.76 based on dividends plus a median target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 47% less than the market as a whole.

China Petroleum & Chemical (SNP) netted $344.19 based on estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 57% over the market as a whole.

CONSOL Coal Resources (CCR) netted $328.61 based on a median target price estimate from five analysts plus projected annual dividends less broker fees. The Beta number showed this estimate subject to volatility 5% less than the market as a whole.

National CineMedia Inc. (NCMI) netted $320.50 based on the median target price estimate from six analysts plus estimated dividends minus broker fees. The Beta number showed this estimate subject to volatility 28% less than the market as a whole.

Westlake Chemical (WLKP) netted 266.31 based on dividends plus a median target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 25% less than the market as a whole.

PennantPark Investment (PNNT) netted $263.89 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% greater than the market as a whole.

Ready Capital Corp. (NYSE:RC) netted $243.37 based on dividends plus a median target price estimate from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 35% under the market as a whole.

Sanofi SA (SNY) netted $242.33 based on dividends plus a median target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 32% below the market as a whole.

Average net gain in dividend and price was 33.23% on $10k invested as $1k in each of these ten sector leader "safer" dividend WallStars. This gain estimate was subject to average volatility 11% less than the market as a whole.

Source: pinterest.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".

Leading WallStars From 11 Sectors Show "Safer" Dividends

Eleven sectors constitute the Morningstar hierarchy of equities tracked by YCharts and all eleven were represented by the 66 firms whose stocks showed positive annual returns with margins of cash to cover dividends January 17.

The "safer" dividend stock representation by sector broke-out, thus: Consumer Cyclical (11), Healthcare (10), Real Estate (7), Consumer Defensive (7), Basic Materials (6), Communication Services (6), Technology (5), Industrials (3), Financial Services (3), Energy (3), Utilities (2).

All eleven sectors listed above populated the 198 Sector Leader "safer" dividend survey shown below by one-year total returns.

66 of 198 Sector-Leading WallStars Show "Safer" Dividends

Source: YCharts

Periodic Safety Inspection

A previous article discussed the attributes of 88 top yield and 88 top target gain among the 198 sector-leading WallStars on this master list.

You see grouped below the tinted list documenting 30 top yielding stocks by sector that passed the "safer" dog check with positive past-year returns and cash flow yield sufficient to cover their anticipated annual dividend yield. The margin of cash excess is shown in the bold face "Safety Margin" column. The sectors were represented according to strength by number. Utilities, Communication Services, and Real Estate had two representatives each, while eight other sectors (Basic Materials, Consumer Cyclical, Consumer Defensive, Energy, Financial Services, Industrials, Technology) were represented by three stocks each.

Source: YCharts

Financial fortunes, however, are easily rearranged by boards of directors setting company policies cancelling or varying the payout of dividends to shareholders. This article contends that adequate cash flow is a strong justification for a company to sustain annual dividend increases to shareholders.

Four additional columns of financial data, listed after the Safety Margin figures above, reveal payout ratios (lower is better), total annual returns, dividend growth levels, and P/E ratios, for each stock. This data is provided to reach beyond yield to select reliable dividend-paying stocks.

Total annual returns by positive results narrowed the 198 sector-leading dogs list to 109 for this article. Positive results in all five columns after the dividend ratio is remarkable as a solid financial signal.

To quantify top dog rankings, analyst mean 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 Revealed More Bargains From Lowest Priced Five of Top Ten Yielding "Safer" Dividend Sector-Leading WallStars

Ten "safer" dividend sector leader WallStars with the biggest yields January 17 per YCharts data ranked themselves by yield as follows:

Source: YCharts

Actionable Conclusions: Analysts Predicted 5 Lowest Priced of Ten "Safer" Dividend High Yield Sector Leader WallStars (11) To Deliver 31.05% Vs. (12) 29.96% Net Gains from All Ten by January 2020

Source: YCharts

$5,000 invested as $1k in each of the five lowest-priced stocks in the ten "safer" dividend sector leader WallStars by yield were estimated by analyst one- year targets to deliver 3.63% more gain than $5,000 invested as $.5k in all ten. The third lowest priced "safer" dividend Utilities WallStar, Capitala Finance Corp., showed the best analyst estimated net gain of 47.38% per their targets.

Source: YCharts

Lowest priced five "safer" sector-leading stocks as of January 17 were:

PennantPark Investment Corp., National CineMedia Inc., Capitala Finance Corp., USD Partners LP (USDP), and Ready Capital Corp., with prices ranging from $7.01 to $14.84.

Higher priced five "safer" dividend sector leaders as of January 17 were: CenturyLink Inc. (CTL), Ares Capital Corp. (ARCC), CONSOL Coal Resources LP, Chimera Investment Corp. (CIM), and China Petroleum & Chemical Corp. (SNP), with prices ranging from $15.99 to $78.86. Low priced little sector leader "safer" divided WallStars stayed took charge for January.

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.

Stocks listed above were suggested only as possible starting points for your safest "safer" utilities 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: pinterest.com

Disclosure: I am/we are long BGSF, CSCO. 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.