Actionable Conclusion (1-10): Analysts Assert Top Ten ‘Safer’ Dividend Basic Materials Stocks May Net 3.72% to 35.26% Gains By June 2019
Seven of the ten top-yield “safer” dividend basic materials stocks (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. Thus the dog strategy for this group for June proved 70% accurate.
The following probable profit-generating trades were flagged by estimated dividend returns from $1000 invested in each highest yielding stock. That dividend and the aggregate one year analyst median target price, as reported by YCharts, created the 2018-19 data. Ten probable profit-generating trades projected to June 11, 2019 were:
SunCoke Energy Partners (SXCP) netted $352.67 based on a target price from four analysts combined with projected annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 34% more than the market as a whole.
Schweitzer-Mauduit International (SWM) netted $201.19 based on a target price from two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 28% more than the market as a whole.
POSCO (PKX) netted $178.50 on a target price from three analysts combined with dividends less broker fees. The Beta number showed this estimate subject to volatility 31% more than the market as a whole.
Westlake Chemical (WLKP) netted $155.82, based on a target price from six analysts combined with projected annual dividends, with broker fees subtracted. The Beta number showed this estimate subject to volatility 6% more than the market as a whole.
Kumba Iron Ore (OTCPK:KUMBF) netted $155.18 based projected annual dividends, less broker fees. The Beta number showed this estimate subject to volatility 30% more than the market as a whole.
Cementos Pacasmayo (CPAC) netted $86.20 based on dividends plus price estimates from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 14% more than the market as a whole.
Vedanta (VEDL) netted $69.40 based on dividends alone less broker fees. The Beta number showed this estimate subject to volatility 123% more than the market as a whole.
Erdemir (OTCPK:ERELY) netted $62.91 per dividends alone less broker fees. The Beta number showed this estimate subject to volatility 93% less than the market as a whole.
OCI Partners (OCIP) netted $49.09 based on dividends less broker fees. The Beta number showed this estimate subject to volatility 19% more than the market as a whole.
Huabao International Holdings (OTCPK:HUIHY) netted $37.20 based on dividends less broker fees. The Beta number showed this estimate subject to volatility 36% more than the market as a whole.
Average net gain in dividend and price was 13.48% on $1k invested in each of these ten ‘Safer’ dividend Basic Materials stocks. This gain estimate was subject to average volatility 36% more than the market as a whole.
Actionable Conclusions (11-13): (Bear Alert) Analysts Anticipated Three ‘Safer’ Dividend Basic Materials Stocks To Lose 7% To 13% By June 2019
Probable losing trades revealed by YCharts were:
BHP Billiton (BHP) projected a loss of $70.74 based on dividend and a median target price estimate from seven analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 25% more than the market as a whole.
BHP Billiton (BBL) projected a loss of $84.22 based on dividend and a median target price estimate from four analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 23% more than the market as a whole.
Norbord (OSB) projected a loss of $133.07 based on dividend and a median target price estimate from ten analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 25% more than the market as a whole.
Average net loss in dividend and price was 9.6% on $1k invested in each of these three ‘Safer’ dividend Basic Materials stocks. This loss estimate was subject to average volatility 60% more 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.”
June ‘Safer’ Dividend Basic Materials Stocks
Yield (dividend / price) results from here June 11 supplemented by 1 year total returns (Annual) verified by YCharts for forty-one of eighty-seven stocks in the basic materials sector revealed the actionable conclusions discussed here.
Eleven of Thirteen Industries Were Represented By The 41 ‘Safer’ Dividend Basic Materials ‘WallStar’ Equities Listed
Of thirteen basic materials sector industries, eleven were represented by the 41 firms that showed positive annual returns and whose dividends were backed by adequate cash as of June 11. The industry representation broke-out, thus: Industrial Metals & Minerals (13); Coal (1); Steel (4); Chemicals (8); Gold (1); Specialty Chemicals (3); Building Materials (2); Lumber & Wood Production (2); Paper & Paper Products (4); Aluminum (2); Agricultural Inputs (1); Copper (0); Silver (0).
Top ten “safer” basic materials stocks showing positive returns and the safety margin of cash to cover dividends as of June 11 represented the first five industries on the list above.
Basic Materials With ‘Safer’ Dividends
Periodic Safety Inspection
A previous article discussed the attributes of the 87 top yield Basic Materials stocks on the above list. Below is the list of 41 resulting from the “safety” check noting positive annual returns and free annual cash flow yield sufficient to cover their estimated annual dividend yield.
Corporate cash flow, however, can always be manipulated by boards of directors who may choose to create company policies cancelling or varying the payout of dividends to shareholders. This article contends that adequate cash flow is strong justification for a company to sustain annual dividend increases.
Four additional columns of financial data, listed after the Safety Margin figures above, reveal payout ratios (lower is better), total annual returns, dividend growth, and p/e ratio levels for each stock. This data is provided to show additional methods to reach beyond yield to select reliable payout stocks. Positive results in all five columns after the dividend ratio show a remarkable financial accomplishment.
To quantify top dog rankings, analyst mean price target estimates provided a “market sentiment” gauge of upside potential. Added to the simple high yield metric, analyst mean price target estimates became another tool to dig out bargains.
Yield Metrics Showed No Gains From Lowest Priced ‘Safer’ Dividend Basic Materials Equities
Ten “Safer” dividend basic materials firms with the biggest yields June 11 per YCharts data ranked themselves by yield as follows:
Actionable Conclusions: Analysts Predicted 5 Lowest Priced, of Ten ‘Safer’ High Yield Dividend Basic Materials Stocks (11) Delivering 7.33% Vs. (12) 9.72% Net Gains From All Ten By June 2019
$5000 invested as $1k in each of the five lowest priced stocks in the “safer” ten basic materials pack by yield were determined by analyst 1 year targets to deliver 24.64% LESS net gain than $5,000 invested as $.5k in all ten. The sixth lowest priced “safer” dividend basic materials stock, SunCoke Energy Partners (SXCP) showed the best net gain of 35.27% per analyst targets.
Lowest priced five “safer” dividend basic materials stocks as of June 11 were: OCI Partners (OCIP); Erdemir (OTCPK:ERELY); Kumba Iron Ore (OTCPK:KUMBF); Vedanta (VEDL); South32 (OTCPK:SOUHY), with prices ranging from $11.00 to $14.67.
Higher priced five “Safer” Dividend basic materials ‘WallStar’ dogs as of June 11 were: SunCoke Energy Partners (SXCP); Westlake Chemical (WLKP); Polyus (OTCPK:OPYGY); Huabao International Holdings (OTCPK:HUIHY); Rio Tinto (OTCPK:RTPPF), with prices ranging from $16.10 to $59.00.
This distinction between five low priced dividend stocks 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. Its 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
Stocks listed above were suggested only as possible starting points for your “safer” dividend “Safer” Dividend Basic Materials 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.
One or more of these 41 “safer” dividend basic material pups by yield qualify as valuable catches! Find them among the now 52 Dogs of the Week I found on The Dividend Dog Catcher premium site, or the 52 Dogs of the Week II now accumulating. They also may be in Dogs of the Week III (Safari to Sweet Success) portfolio launched September 8. Click here to subscribe or get more information.
Make investing gains again. Catch your Underdog on Facebook!
At 8:45 a.m. ET nearly every NYSE trading day on Facebook, Dividend Dog Catcher Fredrik Arnold does a quick live video summary of one of four or five stocks in one sector vying for a single slot in his Safari To Sweet Success portfolio. Go to Facebook/Dividend Dog Catcher on most trading days and watch, comment, like, and share. Of course you’re welcome to review the replays, too.
Yet always remember: Root for the Underdog!
Disclosure: I am/we are long VEDL.
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.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.