I recently came across several analyst articles showing their top dividend stock picks for 2018.
Some of the stocks mentioned were: AFI, ARF, AST, CHC, GNE, MEZ, MFG, MGG, NAB, QBE, SIG, SPK, SUN, TLS, WAM, WBC and WES.
I decided to analyse these stocks using VectorVest’s WatchList and Graph tools to see how they stacked up.
To do this yourself, click on the Viewers Tab on the main toolbar and move down the left-hand side of the screen to WatchLists. Then click on My WatchLists. With this group highlighted, click on the paper image with the top right corner bent down (just below the heading WatchLists) and set up a new WatchList called “Top Dividend Analyst Stocks for 2018” and click Add. You are now ready to enter the stocks above to this WatchList. Don’t forget to put in .AX after each symbol when entering Australian share ticker codes. In the box to the right of the date, type in the first symbol. For example, you would enter AFR as AFR.AX and then put in a comma to separate that stock from the next and then repeat the process until you have entered all the stock codes. Then press the Add button.
Let’s see what VectorVest tells us about this portfolio. We start by going to the WatchList Average Line (located at the bottom of this WatchList). You will see that this portfolio is overvalued, its potential to go up in value is fair with a Relative Value (RV) slightly less than 1 and the safety of this portfolio shown by its Relative Safety (RS) score of less than 1 is modest. If I scroll over to the Dividend Yield Column (to the right), I can see that as of 5 December 2017, the WatchList is yielding 5.29%. That is very good for this group of shares. But the column to the right, Dividend Safety (DS) has a score of 33 of a maximum of 99 which is not a particularly convincing score out. I prefer a score of at least 50. If I scroll over a little further to the IFC% (Interim Franking Credits %) and FFC% (Final Franking Credits %), I can see the percentages are 54.71% and 55.88%, respectively…hmmmmm…. I like to make full use of franking credits with my stocks fully franked (100% franking credits). You can look at these indicators for the individual shares as well.
To complete the analysis, graph the WatchList Average Line. Right click anywhere on this line and select View WatchList Average Graph. Make sure you have ticked the Earning Per Share (EPS) and Dividend Safety (DS) boxes. If they are not shown in your layout, click on Add Parameter (just below the Graph Layouts heading at the top right of the screen). EPS is found under the Capital Appreciation group and DS is found under the Dividend Analysis Group. Once you have added these parameters and selected them on the graph, notice how the earnings are starting to fade and how DS has been falling since July 2017. A QuickTest of all the stocks in this WatchList (click QuickTest on the top of the WatchList page) from 3 January 2017 to 5 December 2017, shows a return of less than 1% (excluding dividends and franking credits). If we consider the dividends and franking credits, this WatchList returns roughly 8%.
We can do better using VectorVest to help us build our own Top Dividend Portfolio of safe dividend shares for 2018.
Set up a new WatchList called “VectorVest Top Dividend Stocks 2018.” Enter the following stocks AFG.AX, CVC.AX, DTL.AX, LYL.AX, NEC.AX, NHC.AX, PIC.AX and PMC.AX. The WatchList Average line shows that this group is undervalued. The portfolio VST is strong at 1.27. IFC% and FFC% are 100%. Dividend Yield (DY) is sitting at 4.93%, slightly lower than the previous portfolio, but adding our 100% franking credits, the overall dividend returns are almost identical. A graph of the WatchList Average Line shows a steady rising EPS and a strong rising DS score just under 60. A QuickTest of this WatchList from 3 January 2017 to 5 December 2017 shows a return of 37% capital gain and if we add fully franked dividends the total return is just over 44%. Why not go for a portfolio paying safe fully franked dividends with solid capital gains?
The lesson here is not to simply rely on the media and endless articles touting dividend stocks without checking them out using VectorVest. You will note that none of the stocks mentioned in the analyst reports made our VectorVest list of dividend stocks for 2018. Out of the two dividend portfolios above, I know which one I would rather go with!
How did I identify the second list of divided shares using VectorVest? In next week’s essay, I will show you exactly how I found these top 8 dividend stocks for my 2018 portfolio!
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Written by: Robert and Russell Markham
DISCLAIMER: THE ABOVE ARTICLE DOES NOT CONSTITUTE FINANCIAL ADVICE. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. YOU SHOULD CONSULT WITH YOUR LEGAL, TAX, FINANCIAL, AND OTHER ADVISERS PRIOR TO MAKING ANY INVESTMENT.