Actionable Conclusions (1-10): Analysts Allege Top Ten “Safer” Dividend Contender Dogs Could Net 10% to 29% Gains By August 2018
Six of the ten top-yield ‘safer’ dividend Contender dogs (tinted gray in the chart above) were verified as being among the Top ten gainers for the coming year based on analyst 1-year target prices. So, the dog strategy for this group as graded by analyst estimates for August proved 60% accurate.
Ten probable profit generating trades illustrated by YCharts analytics to 2018 were:
Brinker International (EAT) netted $289.52, based on guesses from eighteen analysts, plus dividends with broker fees subtracted. The Beta number showed this estimate subject to volatility 75% less than the market as a whole.
TC Pipelines (TCP) netted $167.28 based on a target price from eleven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.
Qualcomm (QCOM) netted $205.25 per estimates from twenty-eight analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 29% more than the market as a whole.
Fastenal (FAST) netted $203.88 based on target price estimates from eighteen analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole
Southside Bancshares (SBSI) netted $157.44, based on dividends plus guesses from two analysts, with broker fees subtracted. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.
Kellogg (K) netted $140.78 based on mean target price estimates from twenty-two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 50% less than the market as a whole.
International Business Machines (IBM) netted $140.78 based on dividends plus price estimates from twenty-six analysts less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.
Finish Line (FINL) netted $137.65 based on dividends plus a median target price estimate from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 27% more than the market as a whole.
Cracker Barrel Old (CBRL) netted $117.89, based on dividends plus guesses from ten analysts, with broker fees subtracted. The Beta number showed this estimate subject to volatility 4% more than the market as a whole.
Urstadt Biddle Properties (UBA) netted $99.53 based on estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 47% less than the market as a whole.
Average net gain in dividend and price was 17.6% on $10k invested as $1k in each of these ten “Safer” Dividend Contender dogs. This gain estimate was subject to average volatility 14% less than the market as a whole.
Actionable Conclusions (11): One ‘Safer’ Contender Dividend Dog Said To Lose 19.2% By August 2018
The probable losing trade revealed by YCharts to August 2018 was:
National Bankshares (NKSH) projected a loss of $192.34 based on dividend and a median target price estimate from two analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 67% less than the market as a whole.
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 August Contender Dogs
David Fish’s Dividend Contender Index members listed as of 7/30/17 were paired with annual dividends and prices posted as of 8/29/17 on YCharts. Results from that data charted below and screened for “safer” supporting annual returns and cash flow yields showed the top ten represented five of eleven business sectors in the Morningstar scheme.
Nine Sectors Were Represented By All 26 “Safer” Dividend Contender Dogs
Nine of eleven Morningstar sectors were represented by the set of 26 firms showing positive annual returns and whose dividends were backed by adequate cash as of August 29. The sector representation broke-out, thus: Energy (2); Real Estate (3); Consumer Cyclical (4); Technology (3); Financial Services (8); Consumer Defensive (3); Healthcare (1); Industrials (1); Utilities (1); Basic Materials (0); Communication Services (0).
Top ten ‘safer’ dividend Contender dogs showing positive returns and the safety margin of cash to cover dividends by this screen as of August 29 represented the first six sectors on the list above.
Contenders With “Safer” Dividends
Periodic Safety Inspection
A previous article discussed 30 top yield candidates of the 74 Contender stocks from which these 24 “Safer” candidates were sorted. You see grouped below the list that passed the “safety” check with positive annual returns and free annual cash flow yield enough to cover their estimated annual dividend yield.
Corporate financial success as excess cash, however, is easily redirected by a determined board of directors adjusting company policies cancelling or varying the payout of dividends to shareholders. This article asserts that adequate cash flow is a 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 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 provided another tool to dig out bargains.
Actionable Conclusions: Wall St. Analysts Cast (12) A 6.3% 1 yr. Average Upside And (13) A 8.24% Net Gain For 24 “Safer” Dividend Contender Stocks
Dogs on the “Safer” Dividend Contender stock list were graphed above to compare relative strengths by dividend and price as of August 29, 2017, with those projected by analyst mean price target estimates to the same date in 2018.
Historic prices and actual dividends paid from $10,000 invested as $1K in each of the ten highest yielding stocks and the aggregate single share prices of those ten stocks created the data points applied to 2017. Projections based on estimated increases in dividend amounts from $1000 invested in the ten highest yielding stocks and aggregate one year analyst mean target prices as reported by Yahoo Finance created the 2018 data points in blue for dividend and green for price. Note: one-year target prices from one analyst were not applied (n/a).
Analysts projected a 6.2% lower dividend from $10K invested as $1k in the top ten July “Safer” Dividend Contender dogs while aggregate single share price was projected to increase by 7.2% in the coming year.
The number of analysts contributing to the mean target price estimate for each stock was noted in the next to the last column on the above chart. Three to nine analysts were considered optimal for a valid estimate. Estimates provided by one analyst were not applied (n/a).
A beta (risk) ranking for each stock was provided in the far right column. A beta of 1 meant the stock’s price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement. A negative beta number indicated the degree of a stock price movement opposed to market direction.
Dog Metrics Found Handsome Gains From Lowest Priced ‘Safer’ Dividend Contenders
Ten ‘Safer’ Dividend Contender firms with the biggest yields August 29 per YCharts data ranked themselves by yield as follows:
Actionable Conclusions: Analysts Predicted (14) 5 Lowest Priced, of Ten “Safer” Dividend High Yield Contender Dogs, To Deliver 16.22% VS. (15) 12.85% Net Gains from All Ten by August 2018
$5000 invested as $1k in each of the five lowest priced stocks in the “safe” ten Contender pack by yield were determined by analyst 1-year targets to deliver 26.21% more net gain than $5,000 invested as $.5k in all ten. The fourth lowest priced safe dividend Contender dog, Brinker International showed the best net gain of 28.95% per analyst targets.
Lowest priced five “safe” dividend Contender dogs as of August 29 were: Finish Line; Donegal Group (DGICA); Urstadt Biddle Properties; Brinker International; TC Pipelines, with prices ranging from $8.50 to $50.96.
Higher priced five ‘Safer’ Dividend Challenger dogs as of August 29 were: Qualcomm; ONEOK (OKE); Meredith (MDP); Westwood Holdings Group (WHG); International Business Machines, with prices ranging from $51.81 to $143.14.
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 “Safer” Contender dog stock research process. These were not recommendations.
Two of these “safer” dividend Contender pups qualified as great catches! Find them among the now 52 Dogs of the Week (DOTW)I or among the 52 accumulating DOTWII found on The Dividend Dog Catcher premium site. A Dogs of the Week III (DC Safari) portfolio launches this month, on September 8. Click here to subscribe or get more information.
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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 contender-retrievers.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.