Always Avoid These Stocks!

Always Avoid These Stocks!

Earlier this week I posted how some of my MFI Formula stocks had fared recently.  A couple of the stinkers were TUP and BKE.  They both had yields over 5%.  So one of my readers commented to always avoid MFI stocks yielding over 5%.

Is this true?  In some sense, it could be a warning that a dividend cut is imminent.  Clearly we saw that with TUP.  In my non MFI portfolio, I saw that with CTL this past week as well and DLNG dove 25% recently on a cut as well.  Finally, I worry that GME is next. (as an aside, I do think it would be interesting to study what happens if you buy a stock that has cut it's dividend say 2 weeks post cut).

But these are anecdotal and we give no value to the names that yield over 5% that don't cut.  So let us go to the data.  First, here is a table that shows (by purchase year) MFI stocks by dividend yield:

Year	None	<1 td="">	1% to 2.6%	2.6% to 5%	Over 5%
2006	10%	12%	5%	35%	34%
2007	-21%	-33%	-27%	-19%	-7%
2008	-8%	-11%	-17%	-11%	1%
2009	36%	29%	39%	53%	50%
2010	3%	44%	14%	18%	18%
2011	-5%	-1%	3%	10%	8%
2012	19%	29%	29%	49%	29%
2013	24%	29%	19%	33%	18%
2014	-10%	64%	14%	6%	15%
2015	-11%	33%	0%	6%	-8%
2016	14%	-6%	22%	21%	15%
2017	9%	-1%	4%	16%	25%
2018	-7%	0%	-1%	1%	6%
Grand Total	4%	11%	7%	18%	16%

So if we look at the 2.6% to 5% (asserted sweet spot by reader) versus over 5%, we frankly don't see much difference.  18% versus 16%.  And is it a recent phenomenon?   No.  In past 5 years 2.6% to 5% is 10% and over 5% is 11%.

Perhaps its makes a difference by market cap?  Let is look just at over 2 billion.

Year	None	<1 td="">	1% to 2.6%	2.6% to 5%	Over 5%
2006	17%	16%	15%	38%	64%
2007	-23%	-42%	-23%	-5%	26%
2008	-1%	-18%	-16%	6%	-20%
2009	27%	36%	45%	23%	21%
2010	6%	50%	7%	20%	35%
2011	-9%	-9%	-5%	16%	43%
2012	4%	28%	55%	52%	58%
2013	51%	27%	18%	38%	48%
2014	-4%	6%	6%	6%	46%
2015	-10%	-11%	-6%	3%	0%
2016	-3%	8%	17%	18%	-14%
2017	19%	-1%	3%	15%	-34%
2018	6%	2%	-2%	2%	-9%
Grand Total	5%	1%	7%	20%	25%

First, I should comment that since I take top 50 over 100m,  the data starts getting thin here.  But here you do see where Steve is making his point.  While for all years, being over 5% has not been a problem (a stellar 25% annual gain), it has been an issue recently.  Past 4 years -14%, which is pretty horrid.

I cannot tell you whether this is the start of a new trend of just an anomaly, but it does bear watching.

Is It Robust?

I mentioned that the data gets thin.  He is same table.  But instead of showing percent gain, it now shows counts.

Year	None	<1 td="">	1% to 2.6%	2.6% to 5%	Over 5%
2006	62	23	40	26	18
2007	48	32	28	11	24
2008	54	12	27	3	5
2009	63	10	26	20	9
2010	77	7	11	13	18
2011	101	8	18	34	13
2012	49	15	22	74	14
2013	25	6	83	85	44
2014	55	11	83	78	22
2015	41	3	68	77	25
2016	67	3	55	75	15
2017	81	2	57	66	20
2018	66	1	92	68	12
Grand Total	789	133	610	630	239

So 2015 through 2018 (the years of -14% for stocks over $2b in market cap and 5% yield or higher have 72 stock years.  That is 18 per year which means just 1.5 each month.  So my thesis is that is is the same stocks stock month by stock month that are driving this results (an one rhymes with Same Gop.

Let us now look at the individual stocks from 2015 and forward in that category just to see how robust it is:

Stock	Initial Price	End Price	Percent Change
BKE	39.73	26.82	-32.5%
BKE	44.69	31.32	-29.9%
BKE	47.32	31.75	-32.9%
BKE	47.78	28.42	-40.5%
CALM	51.98	37.95	-27.0%
CALM	50.03	41.40	-17.3%
CALM	45.23	44.18	-2.3%
CALM	54.63	40.35	-26.1%
CALM	52.18	38.16	-26.9%
CJREF	8.68	3.27	-62.3%
CJREF	9.05	2.85	-68.5%
CJREF	9.29	3.10	-66.6%
EAF	11.44	14.23	24.4%
GME	18.82	15.27	-18.9%
GME	19.65	14.83	-24.5%
GME	19.75	14.57	-26.2%
GME	20.50	12.67	-38.2%
GME	20.94	13.86	-33.8%
GME	20.81	12.62	-39.3%
GME	24.46	15.97	-34.7%
GME	22.63	17.06	-24.6%
GME	23.51	17.95	-23.7%
GME	24.15	17.42	-27.9%
GME	22.35	19.34	-13.5%
GME	25.80	20.66	-19.9%
GME	29.14	21.50	-26.2%
GME	23.51	21.61	-8.1%
GME	27.22	22.22	-18.4%
GME	29.06	22.55	-22.4%
GME	24.87	24.31	-2.3%
GME	26.61	25.26	-5.1%
HPQ	9.35	14.80	58.3%
KING	14.96	18.00	20.3%
KING	13.50	18.00	33.3%
KING	15.47	18.00	16.4%
KING	14.08	18.00	27.8%
KING	16.76	18.00	7.4%
KING	15.53	18.00	15.9%
MO	56.84	48.74	-14.3%
PBI	11.82	7.14	-39.7%
PBI	10.29	5.91	-42.6%
PBI	11.68	7.26	-37.8%
PBI	14.43	8.68	-39.8%
PBI	14.24	8.57	-39.8%
PBI	13.91	8.76	-37.0%
PBI	12.50	10.84	-13.2%
PBI	12.33	10.89	-11.6%
PBI	13.23	12.64	-4.4%
PBI	14.94	12.85	-14.0%
PBI	14.30	11.18	-21.8%
PBI	13.99	9.90	-29.2%
PPC	19.86	18.76	-5.5%
PPC	19.78	18.99	-4.0%
PPC	18.81	18.18	-3.4%
PPC	17.00	21.64	27.3%
PPC	18.83	21.12	12.2%
PPC	18.63	22.84	22.6%
PPC	19.63	23.24	18.4%
PPC	21.42	24.94	16.4%
PPC	22.91	24.84	8.4%
PPC	23.62	23.95	1.4%
PPC	23.71	24.09	1.6%
PPC	27.43	23.71	-13.6%
STX	38.59	45.71	18.5%
STX	42.36	45.71	7.9%
STX	38.15	45.71	19.8%
TUP	39.59	29.73	-24.9%
TUP	42.51	29.73	-30.1%
TUP	42.99	29.73	-30.8%
TUP	45.73	29.73	-35.0%
TUP	48.08	29.73	-38.2%
WDC	36.97	47.65	28.9%

Pretty dismal.  The only decent ones are KING and PPC and they were both in there via special dividends. PBI, TUP and GME are the regular offenders.  

Finally, let look at next layer down, those with market cap between 600m and 2b.

Year	None	<1 td="">	1% to 2.6%	2.6% to 5%	Over 5%
2006	8%	5%	12%	33%	47%
2007	-12%	-14%	-27%	-29%	3%
2008	-11%	6%	-15%	-2%	7%
2009	37%	34%	59%	107%	42%
2010	5%	42%	72%	28%	13%
2011	-14%	10%	15%	9%	26%
2012	25%	37%	8%	45%	21%
2013	9%	48%	41%	20%	31%
2014	2%	62%	20%	7%	-25%
2015	-20%	0%	2%	4%	-38%
2016	7%	0%	43%	20%	14%
2017	9%	0%	6%	4%	35%
2018	-9%	0%	10%	23%	1%
Grand Total	2%	19%	13%	19%	17%

I don't see the same issue here. Past 4 years the over 5% band hasn't been materially worse.

My View

Interesting thoughts.  People have to make up their own mind.  I think data is too thin and I am encouraged that if you go all the way back, over 5% has been fine.  But there is no denying that it has been a rugged run.

Next I will try to find stocks that have cut dividend and what happened afterwards!