Dogcatcher's Safety Check Of 21 Stocks In Kiplinger/Barron's Dividend Elite For May

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Includes: ABBV, BX, EMR, EPD, HD, JNJ, JPM, MKC, MMM, MSFT, O, PG, SRE, TXN, VZ, WMT, XOM
by: Fredrik Arnold
Summary

Barron's dividend scribe, Lawrence C. Strauss, interviewed "several fund managers" to find seven companies "able to keep growing their dividends" 5/13/19.

The Kiplinger Dividend 15, by John Waggoner, Senior Associate Editor, first published in Kiplinger's Personal Finance 11/1/18, was updated 3/8/19, and herein supplemented Barron's report.

21 select stocks from Lawrence and John (one made both articles) ranged from 1.48%-6.15% in annual yield and ranged from -6.85%-+20.72% in annual price target upsides per brokers.

Using the usual dogcatcher safety check algorithm (first eliminating all stocks with negative one-year returns, then dropping those whose dividend yields exceeded free cash flow yields) narrowed the field of 21 to 6 "safer" dividend dogs plus five 'nearly safer' candidates. The Barron's seven were pared down to two in this process.

$5k invested in the lowest-priced five May top-yield Kiplinger/Barron's Elite safety checked dividend selections showed 16.56% more net-gain than from $5k invested in all 10.  Little low-priced Kiplinger/Barron's Elite dogs took charge in May. However, only two of these 21 stocks are not overbought, EPD and BX.

Actionable Conclusions (1-10): Analysts Estimated 2.18% To 21.4% Net Gains For 10 Top Kiplinger/Barron's Elite 'Safer 'Dividend Dogs Into May 2020

All ten top Kiplinger/Barrons 'nearly/safer' elite dividend stocks by yield were also the top 10 gainers for the coming year based on analyst one-year target prices. (They are tinted gray in the chart below.) Thus, this yield-based forecast for these elite dogs was graded by Wall St. Wizards as 100% accurate.

Source: YCharts.com

Projections were based on estimated dividends from $1k invested in each of the highest yielding stocks and their aggregate one-year analyst median target prices, as reported by YCharts. Note: one-year target prices by lone analysts were not applied. 10 probable profit-generating trades projected to May 13, 2020 were:

AbbVie Inc. (ABBV) was projected to net $213.91, based on the median of target estimates from 17 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk 14% more than the market as a whole.

Blackstone Group LP (BX) netted $208.51 based on the median of estimates from 14 analysts, plus dividends. The Beta number showed this estimate subject to risk 47% more than the market as a whole. It is the only stock in the top ten that is not overbought.

Microsoft Corp. (MSFT) was projected to net $163.39, based on a median of target price estimate from 35 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk 24% more than the market as a whole.

Texas Instruments (TXN) was projected to net $105.53, based on a median of target price estimates from 24 analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk 20% more than the market as a whole.

Walmart (WMT) was projected to net $101.40, based on dividends, plus the median of target price estimates from 32 analysts, less broker fees. The Beta number showed this estimate subject to risk 64% less than the market as a whole.

Johnson & Johnson (JNJ) was projected to net $100.79, based on dividends, plus median target price estimates from 19 analysts, less broker fees. The Beta number showed this estimate subject to risk 33% less than the market as a whole.

The Home Depot (HD) was projected to net $94.04, based on dividends, plus a mean target price estimate from 33 analysts, less broker fees. The Beta number showed this estimate subject to risk 9% over the market as a whole.

Verizon Communications (VZ) was projected to net $89.77, based on the median of target price estimates from 30 analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to risk 52% less than the market as a whole.

Realty Income Corp. (O) was projected to net $64.64 based on dividends, plus the median of target estimates from 18 brokers, less transaction fees. The Beta number showed this estimate subject to risk 84% less than the market as a whole.

Procter & Gamble Co. (PG) was projected to net $21.78, based on dividends, plus a mean target price estimate from 26 analysts, less broker fees. The Beta number showed this estimate subject to risk 61% less than the market as a whole.

The average net gain in dividend and price was estimated at 11.64% on $10k invested as $1k in each of these 10 stocks. These gain estimates were subject to average risk 18% less than the market as a whole.

Actionable Conclusion (11): (Bear Alert) Analysts Predicted One Kiplinger/Barron's Elite Top Yielder To Show A 6.34% Loss By May 2020

The probable losing trade revealed by YCharts for 2020 was:

Source: YCharts.com

McCormick & Co. (MKC) projected a loss of $63.44 based on dividend and a median of the target price estimates from 11 analysts including broker fees. The Beta number showed this estimate subject to risk 74% less than the market as a whole.

Source: marthastewart.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."

21 Top Kiplinger/Barron's Elite Dogs By Yield

Actionable Conclusions (12-21): 10 Top Kiplinger/Barron's Elite Dividend Stocks By Yield

Top 10 Kiplinger/Barron's Elite stocks selected 5/13/19 by yield represented seven of 11 Morningstar sectors. First place was claimed by the first of two energy sector representatives, Enterprise Products Partners LP (EPD) [1]. The other energy representative placed third, Exxon Mobil Corp. (XOM) [3].

In second place was the lone healthcare sector rep, AbbVie Inc. [2]. The fourth place was claimed by a lone communications services representative, Verizon Communications [4].

Fifth place was claimed by the lone real estate agent in the top ten, Realty Income Corp., [5], and then, two financial services pups followed in sixth and tenth places, Blackstone Group LP [6], and JPMorgan Chase & Co. (JPM) [10].

Two from the industrials sector placed seventh, and eighth, 3M Co. (MMM) [7], and Emerson Electric Co. (EMR) [8].

One utilities pup claimed ninth place, Sempra Energy (SRE) [9], to complete the Kiplinger/Barron's elite top 10 by yield for May.

Actionable Conclusions: (22-34) Top 10 Kiplinger/Barron's Elite Dogs Showed 8.18% To 20.83% Upsides To May 2020; (35) One Lowly Downsider Showed A -6.32% Loss.

Source: YCharts.com

6 of 21 Kiplinger/Barron's Elite Stocks With "Safer" Dividends And Five With 'Nearly-Safer' Status

Source: YCharts.com

Periodic Safety Inspection

You see grouped below the tinted list documenting 11 that passed the dividend "safer" and 'nearly-safer' checks with positive (or nearly so) past-year returns and cash flow yield sufficient to cover their anticipated annual dividend yield. The margin of excess is shown in the bold face "Safety Margin" column. The total returns column screened out five with sagging returns from the master list of 21 and five failed the safety margin exam.

Source: YCharts.com

Corporate financial fortunes, however, are frequently re-prioritized by boards of directors manipulating company policy 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 payout stocks. Positive results in the five columns after the dividend ratio portend a remarkably solid financial signal.

To quantify top dog rankings, analyst mean price target estimates provide 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 Nice Bargains From Lowest Priced Five of Top 10 Yielding 'Nearly/Safer' Dividend Kiplinger/Barron's Elite Stocks

10 "Safer" Dividend Kiplinger/Barron's elite stocks with the biggest yields May 13 per YCharts data ranked themselves by yield as follows:

Source: YCharts.com

Actionable Conclusions: Analysts Predicted Five Lowest Priced, of 10 "Nearly/Safer" Dividend Kiplinger/Barron's Elite Stocks, (12) Delivering 13.56% Vs. (13) 11.64% Net Gains from All 10 By May 2020

Source: YCharts.com

$k invested as $1k in each of the five lowest priced stocks in the "nearly/safer" Dividend Kiplinger/Barron's Elite stocks 10 pack by yield were determined by analyst one-year targets to deliver 16.56% more gain than $5k invested as $.5k in all 10. The fourth lowest priced "safer" Dividend Kiplinger/Barron's Elite equity, AbbVie Inc. showed the best analyst-augured net gain of 21.39% per target estimates.

Source: YCharts.com

Lowest priced five 'nearly/safer' Dividend Kiplinger/Barron's elite stocks as of May 13 were: Blackstone Group LP., Verizon Communications Inc., Realty Income Corp., AbbVie Inc., Walmart Inc., with prices ranging from $38.80 to $99.89.

Higher priced five "Nearly/Safer" Dividend Kiplinger/Barron's elite stocks as of May 13 were: Procter & Gamble Co., Texas Instruments Inc., Microsoft Corp., Johnson & Johnson, The Home Depot Inc., with prices ranging from $106.11 to $190.34. The little, low-priced, Kiplinger/Barron's elite stocks soundly prevailed. Oh, and the one surviving stock from the Barron's list of seven was Microsoft. It may be a "buy."

The distinction between 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 Nearly/Safer Kiplinger/Barron's Elite stock purchase or sale research process. These were not recommendations.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.indexarb.com, YCharts.com, finance.yahoo.com, analyst mean target price by Thomson/First Call in YahooFinance. Dog photo: marthastewart.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.

Additional disclosure: 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.