Monthly Paying Dividend Dogs: 3 Lists To Buy And Hold For August

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 |  Includes: ARP, ARR, AT, BBEP, CEFL, CLM, CRF, DVHL, FSIC, FULL, GOF, HGT, ISD, JMI, LINE, LNCO, MORL, MTR, OAKS, ORC, PHK, PSEC, QYLD, ROC, ROYT
by: Fredrik Arnold

Summary

July monthly paying dividend (MoPay) entities comprised three lists: 1. Stocks by yield (20/60) 2. Stocks by price upside (10/20) and downside (1/20) 3. Funds, Trusts & Preferreds (FTP) by yield (10/60).

Seven actionable conclusions were drawn: 1. MoPay vs. Dow; 2. Top MoPay gainers; 3. Next MoPay gainers; 4. Best MoPay gainers; 5. Biggest MoPay loser; 6. FTPs vs. Stocks; 7. Risks.

Consider these lists and conclusions as possible starting points for your August MoPay dividend dog stocks, funds, trusts & preferreds purchase/sale research.

Three buy and hold lists featured below provided seven actionable conclusions. In order to draw these conclusions, July monthly pay (MoPay) stock (1) yield and (2) upside potential lists were compared and contrasted against (3) a high-yield (and higher-risk) MoPay buy and hold fund, trust & preferred list.

Monthly Pay Dividend Features

Quarterly, Semi-Annual, and Annual dividend stockholders anxiously await announcements from a firm, fund, or analyst to learn if their next dividend will be higher, lower, or paid at all. Monthly pay stocks, funds, trusts, and partnerships inform the holder every four and one-third weeks by check and/or statement. If the entity reduces or suspends a payment, the holder can sell out of the investment immediately to cut future losses. This advantage has been countered when companies suddenly cut monthly dividends to save cash and trigger a price crash. The segment is volatile.

Readers said:

"One other advantage of monthly paying stocks is the way they are slightly protected against traders that buy just before the ex-date and sell after the record date. The brokerage commissions they have to pay for a measly monthly dividend helps keep them away and the stock price doesn't fluctuate so wildly." --TennisBoy88

"If one buys just before the ex date and sells after the record date, the drop in price cancels out the dividend. So, I do not understand the wisdom of this strategy as submitted by a reader." --tstreet

"[A] problem with this analysis is you are comparing companies of VERY different varieties. REITs pay no taxes and their distributions are classified as ordinary income and thus not subject to the 15% or 20% tax rate. MLPs also pay little no taxes at the corporate level, but instead have "distributions"... Comparing REITs, MLPs and regular corporations thus requires a financial analysis...not include[d]." --arbtrdr

"[Y]ou list a few issues here whose distributions are rife with RETURN OF CAPTAL ((ROC)) at its most destructive form, funds that pay you back your own money each and every month in their distributions with no regard to what they truly earn...- these should not be included in any list containing the word "dividend". --NYer1

"Mopay dividends reinvested will return almost 1% more yearly than quarterly payors as it compounds faster." --drking

"I can enter or exit a position and still reap dividends for at least 2/3s of the quarter. They also smooth the income stream so I have cash at any given time to make a purchase at dips." --Ed Invests

"Dividend dog investing really works well for income in my experience. I have been seriously invested in dogs the more unloved the better." --Urbannek

"... Nice to see another contrarian strategy. This one seems to take a lot of attention in comparison [to Dow dogs], but I like the monthly rebalance." --colodude

"Why do the analysts seem to hate this group of stocks??. I know they are not buy & hold but I have made huge $ off of all of them." --drking

Dogs of the Index Metrics Found Bargains

For this article, sixty dividend equities plus sixty funds, trusts, and preferreds were culled from nearly 700 entities listed here paying monthly returns. All were ranked as of August 1, 2014, using the two key dog performance metrics: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price declared the percentage yield by which each dividend dog stock was ranked.

List One: Monthly Pay Dividend Stocks by Yield

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Ten monthly pay dividend equities showing the best yields through July again represented just two of the nine Yahoo market sectors: financials (Fins), and basic materials (BasMat). The top two dogs revealed by Yahoo Finance data were two of seven in the financial sector: Orchid Island Capital Inc (NYSE:ORC), and ARMOUR Residential REIT (NYSE:ARR). The remaining five financial MoPay dogs placed fourth, and sixth through ninth: Javelin Mortgage Investment Corp. (NYSE:JMI); Five Oaks Investment Corp. (NYSE:OAKS); Mesa Royalty Trust Units (NYSE:MTR); Prospect Capital Corporation (NASDAQ:PSEC); Full Circle Capital Corporation (NASDAQ:FULL).

The third, fifth, and tenth slots in the top ten were filled by basic materials concerns: Pacific Coast Oil Trust (NYSE:ROYT); Hugoton Royalty Trust (NYSE:HGT); Atlas Resource Partners, L.P. (NYSE:ARP), to complete the July MoPay top dog list by yield.

Footnote: July found five more monthly paying common stocks. The lists above now shows 15 nano cap equities valued under $200 M(illion); 26 small caps worth $200M to $2B(illion); 12 mid caps worth between $2B and $10B; 7 large cap companies valued over $10B. Notice that the nano and small cap stocks are grouped toward the top of the yield chart and the large caps toward the bottom.

List Two: Monthly Pay Dividend Stocks by Price Upside & Downside

Results from Yahoo Finance for monthly paying (MoPay) dividend stocks as of market closing prices August 1 were compared with analyst mean target prices one year hence. Ten stocks through July boasted 6.42% to 48.9% price upsides for the coming year. One was flagged by analysts as bear bait losing 16% for the coming year.

Four stocks on the price upside list were not on the top ten list by yield. Two basic materials firms placed second and fifth on the upside list, LinnCo, LLC (NASDAQ:LNCO) and Linn Energy LLC (NASDAQ:LINE). Two financial firms placed ninth and tenth by upside: BreitBurn Energy Partners (NASDAQ:BBEP) and FS Investment Corporation (NYSE:FSIC). Price upside, of course, is defined as the discrepancy between the current price and analyst one-year mean target price for each stock.

Ten Mopay stocks showing the highest upside price potential into 2015 were listed above, out of 20 selected by yield. The number of analysts providing price estimates was noted after the name for each stock. Three to nine analysts were considered optimal for a valid mean target price estimate.

List Three: Monthly Pay Dividend Funds, Trusts & Preferreds by Yield

Sixty top monthly dividend paying (MoPay) funds, trusts & preferred issues listed below were culled from nearly 700 candidates by yields calculated as of August 1 to determine the Top Ten.

Ten monthly dividend funds, trusts & preferreds showing the biggest yields for July as revealed by dividends.com and verified using Yahoo Finance data featured three exchange traded notes (ETNs), six closed-end funds (CEFs), and one exchange traded fund (ETF).

Top dog was tops of the three ETNs: ETRACS Monthly Pay 2X Leveraged Mortgage REIT ETN (NYSEARCA:MORL). The other ETNs placed fifth and seventh: UBS E-TRACS 2X Closed-End ETN (NYSEARCA:CEFL) and UBS E-TRACS Mthly Pay 2x Divs High Income ETN (NYSEARCA:DVHL).

Three of the six CEFs placed second, third, and fourth by yield: Cornerstone Progressive Return Fund (NYSEMKT:CFP), Cornerstone Strategic Value Fund, Inc. (NYSEMKT:CLM), and Cornerstone Total Return Fund, Inc. (NYSEMKT:CRF). The other three CEFs placed sixth, eighth, and tenth: Prudential Short Duration High Yield Fund (NYSE:ISD); PIMCO High Income Fund (NYSE:PHK); Claymore/Guggenheim Strategic Opportunities Fund (NYSE:GOF).

The lone ETF in the top ten, Recon Capital NASDAQ-100 Covered Call ETF (NASDAQ:QYLD), placed ninth to round out this list.

Background and Actionable Conclusions

Monthly pay dividend dog stock lists reviewed since June 2012 prompted reader suggestions to include funds, trusts, and partnerships. A list of MoPay equities to buy and hold in September 2012 resulted from those reader suggestions supplemented with a high-yield collection from here. Thereafter, a docile, sleeping dogs list was supplemented by an upside potential article in October and an upside vs. buy and hold in November. One list factored December 2012 reader comments. January, February, March, April, May, June, July, August, September, October, November, and December 2013 readers contributed mightily. Reader suggestions have continued this year following the January, February, March, April, May, and June 2014 articles. All these articles compared and contrasted MoPay stock upside potential against high-yield (and higher-risk) buy and hold fund, trust & preferred share constituents.

MoPay Stock Dividend vs. Price Compared to Dow

Ten top MoPay dividend dog stocks by yield were graphed below as of August 1, 2014, and compared to those of the Dow. Annual dividend history from $1000 invested in each of the ten highest-yielding stocks, and their aggregate single share price created the data points shown in green for price and blue for dividends.

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Actionable Conclusion (1): MoPay And Dow Dogs Both Got Mixed Up In July

The ten top MoPay dogs jumped in both dividend and price in July, thus becoming "mixed up". Aggregate dividend from $10k invested as $1k in each of the top ten stocks rose 7.5%, while total single share price of those ten hopped up 11.4% after June.

Meanwhile, the Dow dog mix-up since June showed 0.3% higher annual dividend from $10k invested as $1K in each of the top ten Dow dogs since June 18, while aggregate single share price of the ten rose 2.7%. As a result, Dow dogs' overbought condition, in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten, increased. The overhang was $145, or 38%, for January; retreated to $125, or 33%, in February; swelled to $149, or 40%, in March; expanded to $173, or 47%, in April; shrank to $170, or 46%, come May; swelled to $192, or 53%, for June, then gapped to $206, or 56%, in July. Much of the recent move was attributable to price bumps by several of the top ten, most notably by VZ, CVX, and MRK.

To quantify top dog rankings, analyst mean price target estimates provide 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 Conclusion (2): Wall St. Wizards Willed Over 22% 1-yr. Net Gains from Top 10 June MoPay Dogs

Top dogs on the MoPay stock list were graphed below to show relative strengths by dividend, and price as of August 1, 2014 compared those projected by analyst mean price target estimates to the same date in 2015.

Historical 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 for 2014. 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 2015 data points in blue for dividend and green for price. Note: One-year target prices from one analyst were not applied (n/a).

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Yahoo projected a 7.8% lower dividend from $10K invested as $1k in the top ten July MoPay dogs, while aggregate single share price was projected to increase by over 9% in the coming year.

Actionable Conclusion (3): Analysts Predict NEXT10 MoPay DiviDog Net Gains of 10.8% to July 2015

Ten monthly dividend equities that showed the next best yields August 1 represented three of the nine Yahoo market sectors: financials, utilities, and basic materials.

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The NEXT10 dogs showed 5.3% less dividend from $10k invested as 1k in each stock, while aggregate single share price for the NEXT10 was projected by analysts to increase 26.6% 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 charts. Three to nine analysts were considered optimal for a valid projection 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 on the above charts. 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.

Actionable Conclusion (4): Analysts Allege Ten MoPay Dog Stocks to Net 16.5% to 61% Gains Through July 2015

Six of the ten top dividend yielding MoPay dogs 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 MoPay group, as tallied August 1 by Wall St. wizards, was 60% accurate.

Ten probable profit generating trades revealed by Yahoo Finance after July 2015 were:

Pacific Coast Oil Trust netted $610.16 based on dividends plus a mean target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 45% opposite the market as a whole.

LinnCo, LLC netted $285.48 based on dividends plus the mean of annual price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 88% less than the market as a whole.

Atlas Resource Partners netted $269.00 based on a mean target price estimate from eight analysts, combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 51% less than the market as a whole.

Five Oaks Investment Corp. netted $210.98 based on estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 136% greater than the market as a whole.

Linn Energy LLC. netted $207.27 based on dividends plus mean target price estimate from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 34% less than the market as a whole.

Orchid Island Capital Inc netted $205.54 based on estimates from two analysts plus dividends less broker fees. A Beta number was not available for ORC.

Prospect Capital Corp. netted $194.35 based on dividends plus the mean of annual price estimates from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 17% less than the market as a whole.

ARMOUR Residential REIT netted $142.24 based on estimates from fourteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.

BreitBurn Energy Partners netted $190.66, based on dividend plus mean target price estimates from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 33% less than the market as a whole.

FS Investment Corporation netted $165.09 based on dividend plus mean target price estimates from three analysts less broker fees. A Beta number was not available for FSIC.

The average net gain in dividend and price was 25.3% on $1k invested in each of these ten MoPay dog stocks. This gain estimate was subject to average volatility 44% less than the market as a whole.

Actionable Conclusion (5): (Bear Alert) Analysts Forecast AT to Post Net Loss of Nearly 8% After July 2015

The probable losing trade revealed by analysts reported by Thomson/First Call in Yahoo Finance for 2015 was:

Atlantic Power Corp. (NYSE:AT) was projected to lose $79.73 based on dividend and a mean target price estimate from four analysts, including $20 of broker fees. The Beta number showed this estimate subject to volatility 38% less than the market as a whole.

Top Ten Fund, Trust & Preferred Dividend & Price Results vs. MoPay Stocks

Below relative strengths for the top ten MoPay FTP Dogs by yield was graphed as of August 1, 2014 and compared to those of the top ten stocks. Twelve periods of projected annual dividend history from $10,000 invested as $1k in each of the ten highest-yielding equities and the total single share prices of those ten equities created the data points for each period (shown in blue for dividend and green for price).

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Actionable Conclusion (6): MoPay Top Ten DiviDog Funds, Trusts & Preferreds Got Sent A Mixed-Up Signal In July

Charts above show MoPay funds, trusts & preferreds swelled in dividend and also climbed in price to send a mixed-up message for July. Projected dividend from 10k invested as $1k in each of the top ten funds and trusts popped up 9.4%, while aggregate single share price of the top ten over the same period rose 3.4%.

The gap between aggregate single share price of the top ten MoPay funds and trusts and their projected dividend from $1k invested in those ten equities has varied markedly over the past year. The gap increased from 1,148% in November to 1,458% for December, retreated to 1,221% in January, shrank to 934% in February, widened to 998% through March, retreated to 992% in April, retreated again to 961% for May, pulled back again to 825% for June, then expanded to 879% after July.

For stocks, the gap between aggregate single share price and dividend from $1k invested in each was 1,184% in November, surged to 1,348% in December, shrank to 1,204% for January, scaled back to 1,018% in February, widened to 1170% through March, retreated to 1,022% in April, dropped to 883% in May, shrunk again to 825% for June, then widened to 972% in July.

As of August 1, the top MoPay fund, trust & preferred dogs showed $225, or 17%, more dividend at a $126, or 28%, higher aggregate single share price than the MoPay stock top ten.

Actionable Conclusion (7): Buy and Hold Monthly Dividend Paying Stocks, Funds, Trusts & Preferreds If You Dare

Stock analysts don't hazard guesses as to when or how much fund and trust prices will rise or fall. They are paid to gauge individual stocks and a few funds and partnerships. Hence, this monthly pay FT&P dog diligence only revealed a list of funds and trusts to buy and hold if you dare.

Net gain and 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.

The stocks listed above were suggested only as decent starting points for your MoPay dividend 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.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.

Disclosure: The author is long ARR, AT, FSC, HRZN, PGH, CSCO, GE, INTC, MSFT, PFE, T, VZ. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.