This article was written to reveal bargain stocks to buy and hold for at least one year. It is one of an ongoing series that has reported (1) dividend yield; (2) price upside; (3) net gain results based on analysts' 1 year target projections. Stocks reported were termed dogs because they were all selected based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991), which revealed how high yielding stocks whose prices increased (and whose dividend yields therefore decreased) could be sold off once a year to sweep gains and reinvest the seed money into higher yielding stocks in the same index, named Dogs of the Dow. O'Higgins system works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates expanded the universe to include popular growth equities if desired.
This report tallied yield (dividend / price) results from here verified by Yahoo Finance for monthly dividend paying small, mid, and large cap (MoPaySML) stocks as of market closing prices on January 2 compared to those results for the top ten dogs of the Dow. Four actionable conclusions were drawn.
Actionable Conclusion (1): MoPaySML Dogs Slide Down; Dow Dogs Slide Up Into 2014
MoPaySML dividend dogs slid lower in both dividend and price after December 10. Aggregate dividend from $10k invested as $1k in each of the top ten stocks fell at a rate of 1.6% since then while total single share price of those ten dropped over 17% for the period.
The Dow dogs, meanwhile, slid up as projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs grew .27% since December 10, while aggregate single share price inclined over .11%. The Dow dogs overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested in those ten (@$1k each) barely changed. The overhang was $161 or 43% for September; shrank down to $111 or 30% for October; expanded to $171 or 47'% November 11; backed off to $127 or 34% November 20; shrank again to $108 or 29% to end November; grew to $125 or 33.7% to start December; stayed at $125 or 33.5% January 2. Some of the recent move was perhaps triggered by Microsoft (NASDAQ:MSFT) replacing Coca-Cola Co. (NYSE:KO) in the top ten Dow dogs to start the new year.
Monthly Pay Dividend Pros, Cons & Conclusions
Pros and Cons
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. So the segment is volatile.
Readers have added fuel. TennisBoy88 wrote:
"...Monthly paying stocks...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."
Reader drking pointed to another advantage of receiving 12 vs. 4 dividends per year:
"Mopay dividends reinvested will return almost 1% more yearly than quarterly payors as it compounds faster."
Many readers were offended by the term "dividend" applied to REITs, MLPs and hybrid financial institutions. For example, arbtrdr wrote:
"The only 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]."
Dogs of the Index Metrics Extracted Bargains
For this article thirty small, mid, and large cap dividend equities were culled from over 650 entities paying monthly returns.
January 2 Monthly Pay Small. Mid, and Large Cap Dividend Stocks
Ten monthly pay S/M/L Cap dividend equities showing the best yields as of January 2, represented the usual three of nine Yahoo market sectors. The top dog stock revealed by Yahoo Finance data was again Armour Residential REIT (NYSE:ARR). This was one of five financial sector firms that dominated the list. The remaining four financial MoPaySML dogs placed fourth, seventh, eighth and ninth: Prospect Capital Corporation (NASDAQ:PSEC); Hugoton Royalty Trust (NYSE:HGT); Fifth Street Finance (NASDAQ:FSC), and Brookfield Canada Office Properties (NYSE:BOXC).
The second and third slots in the top ten were filled by two of three basic Materials concerns: Pacific Coast Oil Trust (NYSE:ROYT) and Enduro Royalty Trust (NYSE:NDRO). The other placed tenth: Linn Energy LLC; (NASDAQ:LINE). Two utilities, Atlantic Power Corp (NYSE:AT), and Just Energy Group Inc. (NYSE:JE), placed fifth and sixth to round out the January 2 MoPaySML top dog list.
To quantify the top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential and so were added to the simple high yield "dog" metric used to sniff out bargains.
Wall Street Wizard Weighting
One year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment were used to compare ten stocks showing the highest upside price potential into 2014 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 was considered optimal for a valid mean target price estimate.
Actionable Conclusion (2) Ten MoPaySML Dividend Dogs Track 15% to 41% Upsides
Top 20 dogs on the MoPay stock list were graphed below to show relative strengths by dividend and price as of January 2, 2014 and those projected by analyst mean price target estimates to the same date in 2015.
A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by projected annual per share dividend amounts to find the dividend return. Thereafter the analyst mean target price was used to gauge the stock upsides to 2015.
Historic prices and actual dividends paid from $1000 invested in each of the ten highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 created the data points for 2013. Projections based on estimated increases in dividend amounts from $1000 invested in the twenty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 2 created the 2014 data points green for price and blue for dividends.
Actionable Conclusion (3): Wall Street Wizards Wisdom Willed Over 21% 1 yr. Net Gain from Top 20 MoPay SML Dogs
Yahoo projected over 12.5% lower dividend from $10K invested as $1k in the average ten of this group of while aggregate single share price of those ten was projected to increase by over 13.5% 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 charts. Three to nine analysts was 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 chart. 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 opposite of market direction.
Actionable Conclusion (4): Wall St. Analysts Forecast 2015 MoPaySML DiviDog Stock Net Gains of 20% to 51%
Five of the ten top dividend yielding MoPaySML dogs were verified as being among the ten gainers out of 20 for the coming year based on analyst 1 year target prices. So this week the dog strategy for this collection as graded by Wall St. wizards was 50% accurate.
Ten probable profit generating trades were revealed by Thomson/First Call in Yahoo Finance for 2014:
Enduro Royalty Trust netted $510.68 based on dividends plus mean target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.
Pacific Coast Oil Trust netted $421.06 based on dividends plus a mean target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 88% less than the market as a whole.
Baytex Energy Corp. (NYSE:BTE) netted $383.58 based on a mean target price estimate from eleven analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 66% greater than the market as a whole.
Atlantic Power Corp. netted $356.81 based on estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 69% less than the market as a whole.
Fifth Street Finance Corporation netted $322.36, based on dividend plus mean target price estimates from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 21% less than the market as a whole.
Armour Residential REIT netted $309.15 based on estimates from nine analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 65% less than the market as a whole.
American Realty Capital (NASDAQ:ARCP) netted $296.24 based on dividends plus the mean of annual price estimates from five analysts less broker fees. The Beta number showed this estimate subject to volatility 11% opposite the market as a whole.
LinnCo, LLC (NASDAQ:LNCO) netted $245.71, based on dividend plus mean target price estimates from nine analysts less broker fees. A Beta number was not available for LNCO.
STAG Industrial, Inc. (NYSE:STAG) netted $214.97 based on dividends plus the mean of annual price estimates from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 13% less than the market as a whole.
Home Loan Servicing Solutions Ltd. (NASDAQ:HLSS) netted $201.59 based on a mean target price estimate from eight analysts combined with projected annual dividend less broker fees. A Beta number was also not available for HLSS.
The average net gain in dividend and price was 33.7% on $10k invested as $1k in each of these ten mopay dogs. This gain estimate was subject to average volatility 23% less than the market as a whole.
The stocks listed above were suggested only as decent starting points for a sector dog dividend stock purchase research process in December and April 2013. These were not recommendations.
Gains as reported do not factor-in any tax problems resulting from distributions. Consult your tax advisor regarding the source of "dividends" from any investment.
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.
Disclosure: I am long ARR, AT, ERF, FSC, HRZN, PGH, CSCO, CVX, GE, INTC, MCD, MSFT, PFE, T, VZ. 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.