Peter Lynch is credited with inventing the price-to-earnings-growth (PEG) ratio, which helps determine an inexpensive stock given its growth potential. Lynch invests for the long-term and chooses companies with undervalued-assets.
27 of 35 Peter Lynch Universe stocks tracked by YCharts showed dividends >4% as of 10/11/19. Top-ten ranged 6.86%-15.45% by yield and ranged 26.35%-123.42% by broker price-target-upsides.
Ten top net gain Peter Lynch Universe dividend dogs boasted broker-estimated net gains from 20.59% to 128.68%.
$5k invested in the lowest-priced five top-yield Peter Lynch dividend dogs showed 3.73% more net-gain than from $5k invested in all ten. Little low-priced dogs ruled this Peter Lynch folio dividend pack.
YCharts states it selects stocks daily based on the Peter Lynch Universe screen. The list has one caveat: "what worked in the past is never guaranteed to work in the future."
A previous series of articles looked at (1,2, & 3) billionaire and hedge fund holdings beginning with 50 Kiplinger stocks selected from individual holdings of high net worth notables as penned by James Brumley, an author for Kiplinger.
Then (4) we surveyed Warren Buffett and his Berkshire Hathaway collection of dividend dogs, followed by (5) a survey of 61 Solid Goldman Sachs dividend holdings, and then (6) looked at the dogs of BlackRock, the world's biggest manager of fund holdings, went on to (7) survey Soros Fund holdings, and finished with a look at (8) Neuberger Berman equities, and (9) Renaissance-Medallion dividend stocks.
Late Summer, a previous series of "by the book" articles looked at five essential published investment strategies named for Ben Graham, Growth at a Reasonable Price, Peter Lynch, Large Cap Value, and Dividend Power.
Actionable Conclusions (1-10): Brokers Estimated 20.59% To 128.68% Net Gains For Ten Top Peter Lynch Universe Dividend Dogs By October 2020
Five of ten top Peter Lynch folio stocks by yield were among the top ten gainers for the coming year based on analyst 1-year target prices. (They are tinted gray in the chart below). Thus, this yield-based forecast for Lynch-selected dogs was graded by Wall St. Wizards as 50% accurate.
Projections were based on estimated dividends from $1000 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. Ten probable profit-generating trades projected to October 11, 2020 were:
China Yuchai International (CYD) was projected to net $1,286.80, based on the median of target price estimates from three analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to risk 78% more than the market as a whole.
Alliance Resource Partners (ARLP) was projected to net $539.35, based on a median of target price estimates from three analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risks 5% less than the market as a whole.
Viper Energy Partners LP (VNOM) was projected to net $484.03, based on the median of target price estimates from twenty-three analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to risks 28% more than the market as a whole.
Fanhua Inc. (FANH) was projected to net $301.64, based on dividends, plus the median of target price estimates from two analysts, less broker fees. The Beta number showed this estimate subject to risks 27% more than the market as a whole.
Moelis & Co. (NYSE:MC) was projected to net $282.27 based on dividends, plus the median of target estimates from nine brokers, less transaction fees. The Beta number showed this estimate subject to risk 99% over the market as a whole.
BP Midstream Partners LP (BPMP) netted $272.02 based on the median of estimates from eight analysts, plus dividends. A Beta number was not available for BPMP.
Bank of N.T. Butterfield & Son Ltd. (NTB) was projected to net $262.65, based on the median of target estimates from six analysts, plus dividends, less broker fees. A Beta number was not available for NTB.
AllianceBernstein Holding (AB) was projected to net $226.90, based on dividends, plus the median of target price estimates from seven analysts, less broker fees. The Beta number showed this estimate subject to risks 21% more than the market as a whole.
United Breweries Co Inc. (CCU) (Compañía Cervecerías Unidas) was projected to net $213.2, based on dividends, plus a mean target price estimate from five analysts, less broker fees. The Beta number showed this estimate subject to risk 38% less than the market as a whole.
Equity Commonwealth (EQC) was projected to net $205.91, based on dividends, plus the median of target price estimates from four analysts, less broker fees. The Beta number showed this estimate subject to risk 43% more than the market as a whole.
The average net gain in dividend and price was estimated at 45.09% on $10k invested as $1k in each of these ten stocks. These gain estimates were subject to average risks 76% less than the market as a whole.
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".
The Peter Lynch Folio Selections For October 2019
How did this collection of 35 Peter Lynch Universe dogs come to be?
Peter Lynch is one of the most successful and well-known investors of all time. Lynch is the legendary former manager of the Magellan Fund at the major investment brokerage Fidelity. He took over the fund in 1977 at age 33. He ran it for 13 years, and his success allowed him to retire in 1990 at 46. His investment style has been described as adaptive to the prevailing economic environment at the time, but Lynch always stressed that you should be able to understand what you own.
An investor who put $1,000 into the Magellan Fund the day Lynch took over would have had $28,000 the day he left. Under his management, the fund returned an average of 29 percent per year and outperformed the S&P 500 for all but two years. Many investors commonly point to Lynch as an example that active management can achieve superior results relative to the benchmark.
Lynch is the author of the bestselling investment books One Up on Wall Street (1989) and Beating the Street (1994). He created the Lynch Foundation to support education, religious organizations, medicine and more.
REVIEWED BY JAMES CHEN for YCharts, Updated Jun 21, 2019
35 Peter Lynch Universe Selections By Target Gains
35 Peter Lynch Universe Selections By Yield
Actionable Conclusions (11-20): 10 Top Peter Lynch Universe Stocks By Yield
Top ten Peter Lynch Universe stocks selected 10/11/19 by yield represented four of eleven Morningstar sectors.
Top dog by yield was the lone basic materials firm, Alliance Resource Partners LP . Then, one of six energy sector representatives placed second, VOC Energy Trust (VOC) . The other energy dogs took third, fourth, seventh, ninth and tenth places, Sinopec Shanghai Petrochemical Co Ltd. (SHI) ; Dorchester Minerals LP (DMLP) , BP Midstream Partners LP , Viper Energy Partners LP , and CVR Energy Inc. (CVI) .
The lone real estate representative placed fifth, Equity Commonwealth , and finally, two financial services Peter Lynch Universe stocks rounded out the top ten by yield in sixth, and eighth places, Artisan Partners Asset Management Inc. (APAM) , AllianceBernstein Holding LP , to complete the Lynch selected top ten dogs by yield.
Actionable Conclusions: (21-30) Top Ten October Peter Lynch Universe Dogs Showed 19.71%-123.16% Upsides While (31) Five Downsiders Ranged -0.08%-9.53%
To quantify top dog rankings, analyst median price target estimates provided a "market sentiment" gauge of upside potential. Added to the simple high-yield metrics, analyst mean price target estimates became another tool to dig out bargains.
Analysts Forecast A 3.73% Advantage For 5 Highest Yield, Lowest Priced Peter Lynch Dividend Stocks To 2020
Ten top Peter Lynch Universe dividend dogs were culled by yield for this update. Yield (dividend/price) results provided by YCharts did the ranking.
As noted above, top ten Peter Lynch Universe dividend dogs of 10/11/19 showing the highest dividend yields represented four of eleven Morningstar sectors.
Actionable Conclusions: Analysts Predicted 5 Lowest-Priced Of The Top Ten Highest-Yield Peter Lynch Folio Dogs (32) Delivering 23.49% Vs. (33) 22.64% Net Gains by All Ten Come October, 2020
$5000 invested as $1k in each of the Peter Lynch Universe kennel dogs by dividend yield were predicted by analyst 1-year targets to deliver 3.73% more gain than $5,000 invested as $.5k in all ten. The second lowest priced selection, Alliance Resource Partners LP, was projected to deliver the best net gain of 53.93%.
The five lowest-priced top-yield Peter Lynch Universe dividend dogs as of October 11 were: VOC Energy Trust, Alliance Resource Partners LP; BP Midstream Partners LP; Dorchester Minerals LP; Artisan Partners Asset Management Inc., with prices ranging from $5.13 to $26.59.
Five higher-priced Peter Lynch Universe dividend dogs as of October 11 were: Viper Energy Partners LP; Dorchester Minerals LP; AllianceBernstein Holding LP; Sinopec Shanghai Petrochemical Co Ltd.; Equity Commonwealth; CVR Energy Inc., whose prices ranged from $26.96 to $43.75.
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 By The Investment Style Book Picks 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.
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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.