Monthly Pay Dividend Dogs Stay Bullish As Dow Turns Bearish July 22

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Includes: AGNC, APLE, ARR, BRG, CJREF, CLM, CPTA, DCTFF, EDF, FCGYF, FSC, FSFR, GAIN, GGN, GLO, GLQ, IGD, MORL, NCZ, NHF, ORC, PFLT, PHK, PSEC, STAG, STB, WSR
by: Fredrik Arnold

Summary

59 monthly pay dividend (MoPay) Small, Mid, & Large capitalized equity (SML) yields ranged 0.47% to 15.22%; 60 SML Funds, Notes, & Partnerships (FTPs) ranged 6.28% to 27.43% July 22.

Top ten MoPay dividend equities continued bullishly averaging 11.86% yield. Ten MoPay FTPs charged too, averaging 15.08%, but ten Dow Dogs retreated, averaging 3.58% yield.

Analyst 1-year targets spotted thirty MoPay equities averaging 0.34% downsides, but posting 7.54% net gains. Among FTPs, though not targeted by analysts, top 30 gains by yield measured 11.86%.

Top gaining equities were: VSN.TO, GAIN, FSFR, DCI.TO, PSEC, AGNC, ARR, CPTA, FSC, with ORC leading. FTPs were: NCZ, GLQ, PHK, GLO, IGD, GGN, NHF, EDF, CLM, with MORL leading.

Ten top yield SML equities projected 29.11% more gain from $5k invested in the lowest-priced five than from $5K in all ten.

Fifty-Nine MoPay SML Dog Equities

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 7/22/16 revealed actionable conclusions discussed below. Small cap firms were valued at $200M(illion) to $2B(illion); Mid cap firms were worth $2B to $10B; Large caps were valued above $10B. The same scale was used to select funds, trusts, and notes based on their total assets under management.

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Dividend Dog Rules

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."

July 22 MoPay SML Dogs

See my most recent Dow 30 article for an explanation of the term "dogs" for stocks reported, based on Michael B. O'Higgins' book "Beating The Dow" (HarperCollins, 1991), now named Dogs of the Dow. The O'Higgins system works to find bargains in any collection of dividend-paying stocks. Utilizing analyst price upside estimates expanded the stock universe to include popular growth equities, as desired.

Dog Metrics Detected Bargains

Fifty-nine small-, mid-, and large-cap monthly dividend-paying equities were pulled from 755 equities of all sizes for this article. Closed-End Funds (CEFs), Exchange-Traded Funds (ETFs), and Exchange-Traded Notes (ETNs) were excluded here, and Preferred Shares would be included in the FTP list. Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs), Royalty Trusts (RTs), and Business Development Companies (BDCs) populated the equity list along with common shares.

After January 1, 2016, preferred stocks came to be listed with funds, trusts, and notes. Analyst coverage is sparse for preferred shares, funds, trusts, and notes, but more robust for common stocks. Energy sector preferred issues that once rode the top of that list in January have since cut dividends and dropped out.

Ten top monthly pay SML Cap dividend stocks this week by yield included three real estate firms, six financial service firms, and one energy firm, covering three of the eleven Morningstar business sectors.

Again, real estate and financial firms dominated the top 10 list and loaded the master list of fifty-nine with seventeen REITs and eleven financial service firms, along with seventeen energy issues, two consumer cyclical, four industrial, one utility, four healthcare, one communication services, and two basic materials firms represented. Only consumer defensive and technology sectors were missing from the monthly/dividend equity payor list.

A diversified REIT led the top ten list: Orchid Island Capital (NYSE:ORC) [1]. Two other real estate entities followed in fourth and fifth places: ARMOUR Residential REIT (NYSE:ARR) [4] and American Capital Agency (NASDAQ:AGNC) [5].

Six financial services representatives placed themselves in second, third, and sixth through ninth places: Fifth Street Finance (NYSE:FSC) [2], Capitala Finance Corp. (NASDAQ:CPTA) [3], Prospect Capital Corporation (NASDAQ:PSEC) [6], DirectCash Payments Inc. (OTC:DCTFF, DCI.TO) [7], Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) [8], and Gladstone Investment (NASDAQ:GAIN) [9].

Thereafter came the lone energy equity, in tenth place, Veresen (OTC:FCGYF, VSN.TO) [10], to complete the July 22nd MoPay SML top yield ten dog list.

MoPay Funds, Trusts, and Partnerships by Yield

58 small closed-end funds, plus one small ETN and one small ETF were culled from nearly 800 monthly dividend-paying (MoPay) funds, trusts, and partnerships by yields calculated as of July 22 to determine the top ten.

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Ten monthly dividend funds, trusts, and partnerships showing the biggest yields (revealed by YCharts.com and verified using Yahoo Finance data) this week included nine closed-end funds and one exchange-traded note.

In the top spot was the lone ETN: ETRACS Monthly Pay 2X Leveraged Mortgage REIT ETN (NYSEARCA:MORL) [1].

Second dog and leader of the nine CEFs was Cornerstone Strategic Value Fund, Inc. (NYSEMKT:CLM) [2].

The remaining eight CEFs placed third through tenth: Stone Harbor Emerging Markets Income Fund (NYSE:EDF) [3], NexPoint Credit Strategies Fund (NYSE:NHF) [4], GAMCO Global Gold, Natural Resources & Income Trust (NYSEMKT:GGN) [5], Voya Global Equity Dividend and Premium Opportunity Fund (NYSE:IGD) [6], Clough Global Opportunities Fund (NYSEMKT:GLO) [7], PIMCO High Income (NYSE:PHK) [8], Clough Global Equity Fund (NYSEMKT:GLQ) [9], and AllianzGI Convertible & Income Fund II (NYSE:NCZ) [10], to round out this FTP top ten list.

Actionable Conclusions: (1) MoPay SML Dogs Rallied Bullishly; (2) Funds, Trusts, and Notes Did Too; (3) Dow Dogs Retreated From Their Widest State of Overbought

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After July 15, MoPaySML top ten dogs continued their charge as dividends fell and prices increased to stay bullish. Dividend dropped 1.7%, while the aggregate single-share price of the ten rose 4.8%.

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Meanwhile, MoPay fund, trust, and partnership top ten dogs charged barely. Dividend fell 2%, while the aggregate single-share price of those ten equities arose 1.5%.

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Dow dogs, however, retreated unlike the MoPay equities, the aggregate single-share price for those ten fell .33% between July 13 and July 22, while the annual dividend from $10k invested as $1K in each of the top ten rose 0.29%, according to IndexArb.

As a result, the Dow dogs' overbought condition (in which the aggregate single-share price of the ten was greater than the projected annual dividend) fell back a touch.

Actionable Conclusion (3): Dow Overbought Gap Stays High

The August 2015 gap was up slightly, then September shrank the gap to $279, or 67%. October expanded the chasm again to $323, or 82%. November-December constricted the gap somewhat to $271, or 70%.

January narrowed the gap more to $246, or 57%. In February, when $30 Intel (NASDAQ:INTC) with its dividend dollar replaced the Procter & Gamble (NYSE:PG) $75 price and $2.80 dividend, the gap of Dow price over dividend grew to $265, or 65%. But P&G reclaimed slot ten in March to join big dogs IBM Corp. (NYSE:IBM) and Boeing (NYSE:BA) to move the gap to $400, or 104%, as of April.

A May price retreat brought the price over dividend gap down to $350, or 91%. June 10 put the gap back up to $386, or 104%. Price action brought the gap to $414, or 114%, as of July 8 and moved it wider to $446, or 125%, as of July 15. The gap receded slightly to $443, or 124%, as of July 22.

This gap between high share price and low dividend per $1k invested shows an overbought condition. Meaning, these are low-risk and low-opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend July 15 was $27.85.

Actionable Conclusion (4): The MoPay Shares Price Advantage

MoPay dog charts for either stocks or FTPs show those dogs to be volatile, high-risk, and potentially more rewarding pups than those of the Dow. The July 22 SML MoPay equity top ten average price per dollar of annual dividend was $8.35.

The opportunity gaps and price per dividend dollar point to an advantage for funds, trusts, and preferred stocks in the MoPay universe. The SML MoPay FTP stocks top ten average price per dollar of annual dividend was $6.28. That $2.07 difference below the equity share dividend cost is likely due to the trusts' and funds' ability to return capital to investors in addition to dividends.

Actionable Conclusion (5) MoPay REITs and Financial Services Still Outnumber Industrial and Consumer Sectors 8 To 2 on Upside and Net Gain Lists

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Actionable Conclusion (6) Wall St. Analysts Cast a 6.19% Average 1-year Upside for Top 10 MoPaySML Dogs Come July 22, 2017

One-year median target price set by brokerage analysts multiplied by the number of shares in a $1k investment revealed ten stocks showing the greatest upside price potential into 2017 out of 30 selected by yield in 2016.

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Actionable Conclusion (7) Annual Yields Averaged 15.38% For July 15 MoPay Top 10 FT&P List

Top ten funds, trusts, and partnerships paying monthly dividends showed yields ranging from 12.36% to 27.43% promising investors strong returns, not counting price appreciation.

Actionable Conclusions: Wall St. Wizards Envisioned (8) A 0.35% Average 1-year Downside But (9) A 7.54% Average Net Gain for Top 30 SML Stocks As Of July 22, 2017

Top 30 dogs on the MoPay stock list graphed below show relative strengths by dividend and price as of July 22, 2016 and those projected by analyst mean target price estimates to the same date in 2017.

A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The number of shares was then multiplied by projected annual dividend amounts to find the dividend return. Thereafter, the analyst mean target price was applied to gauge each stock's upside to 2017.

The historical prices and actual dividends paid from $1000 invested in each of the highest-yielding stocks and the aggregate single-share prices of those 30 stocks divided by 3 created the data points for 2016. Projections based on estimated increases in dividend amounts from $1000 invested in the 30 highest-yielding stocks and aggregate 1-year analyst target share prices from Yahoo Finance divided by 3 created the 2017 data points shown on the chart below in green for price and blue for dividend.

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Yahoo reported Thomson/First Call analyst survey numbers predicting a 5.7% higher dividend from $10K invested as $1k in the average ten of this group, while the aggregate single-share price of those ten was estimated to fall by nearly 1.4% 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 have the better track record for predicting upsides. 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's price movement opposed to market direction.

Actionable Conclusion (10): Wall St. Brokers Imagined 14.32% Average Net Gains For the Top 10 MoPaySML Dogs As Of July 22, 2017

For this period, five of the ten top dividend-yielding MoPaySML dogs were verified as being among the top ten by upside and gain for the coming year, based on analyst 1-year target prices. So, for this period, the dog methodology graded by Wall St. Wizards was 50% accurate.

Ten probable profit-generating trades revealed by Thomson/First Call in Yahoo Finance for July 22, 2017 were:

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Fifth Street Finance was projected to net $251.90, based on dividends plus the median of annual price estimates from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 95% less than the market as a whole.

PennantPark Floating Rate Capital (NASDAQ:PFLT) was projected to net $182.54, based on dividends plus median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 41% less than the market as a whole.

Gladstone Investment was projected to net $180.00, based on the median target estimate from two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 27% less than the market as a whole.

Fifth Street Senior Floating was projected to net $158.57, based on the median target price estimate from three analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 65% less than the market as a whole.

Capitala Finance Corp. was projected to net $154.59, based on the median target price estimate from eleven analysts plus dividends less broker fees. A Beta number was not available for CPTA.

American Capital Agency was projected to net $120.53, based on dividends plus the median of annual price estimates from fourteen analysts less broker fees. The Beta number showed this estimate subject to volatility 89% less than the market as a whole.

Student Transportation, Inc. (NASDAQ:STB) was projected to net $112.19, based on dividend plus the median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 16% less than the market as a whole.

Bluerock Residential (NYSEMKT:BRG) was projected to net $110.80, based on dividends plus the median of annual price estimates from seven analysts less broker fees. A Beta number was not available for BRG.

Corus Entertainment (OTCPK:CJREF) was projected to net $102.40, based on the median target price estimate from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 41% less than the market as a whole.

Whitestone REIT (NYSEMKT:WSR) was projected to net $58.67, based on a median target price estimate from five analysts, combined with its projected annual dividend less broker fee. The Beta number showed this estimate subject to volatility 6% less than the market as a whole.

The average net gain in dividend and price was 14.32% on $10k invested as $1k in each of these ten MoPay dogs. The averaged Beta number showed this estimate subject to volatility 47% less than the market as a whole.

Actionable Conclusion (11): (Bear Alert) Analysts Predicted Four MoPay SML Dogs To Lose An Average of 6.37% By July 2017

Four probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 were:

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Apple Hospitality REIT (NYSE:APLE) was projected to lose $27.86, based on dividend and a median target price estimate from thirteen analysts, including $20 of broker fees. A Beta number was not available for APLE.

Prospect Capital was projected to lose $60.10, 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 62% less than the market as a whole.

DirectCash Payments Inc. was projected to lose $81.13, based on dividend and a median target price estimate from three analysts, including $20 of broker fees. The Beta number showed this estimate subject to volatility 28% less than the market as a whole.

STAG Industrial (NYSE:STAG) was projected to lose $85.81, based on dividend and a median target price estimate from fourteen analysts, including $20 of broker fees. The Beta number showed this estimate subject to volatility 16% more than the market as a whole.

The average net loss in price plus broker fees including annual dividends was predicted to be 6.37% on $4k invested as $1k in each of these four MoPay dogs. This loss estimate was subject to average volatility 25% less than the market as a whole.

Monthly Pay Dividend Dog 1-Year Price Chart Illustrates Analyst "Contrarian Bias" For FSC Vs. STAG

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Year-to-date price histories report how the lowest MoPay "loser", STAG Industrial, red-lined by analysts, showed a positive price history, compared to a negative report for the analysts upside star stock, Fifth Street Finance, in blue. STAG is a REIT, and FSC is a business development company.

This evidence correlates with Michael O'Higgins' "media index" admonition. He advises investors to pay close attention to "magazine covers, news headlines, and ads placed by investment advisors, primarily in Barron's." He concludes that "you can make out like a bandit by acting the opposite way."

May this add to the evidence of analyst target price estimates really being contrarian indicators.

Dog Metrics Found More Gain In the Smallest MoPay Dividend Dogs

As noted above, ten top monthly pay SML Cap dividend stocks this week by yield included three real estate firms, six financial service firms, and one energy firm, covering three of the eleven Morningstar business sectors. As of market close, July 22, MoPay leaders by yield were as follows:

Actionable Conclusions: Analysts Advised (12) 5 Lowest Priced of the Top Ten High Yield MoPay SMLs Would Deliver 12.04% Vs. (13) 9.33% Net Gains from All Ten

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$10,000 invested as $1k in each of the five lowest-priced stocks in the top ten MoPaySML kennel by yield were predicted by analyst 1-year targets to deliver 29.11% more net gain than $1k invested in each of all ten. The very lowest-priced MoPaySML dog, Fifth Street Finance, was projected to deliver the best net gain of 25.19%.

The lowest-priced five MoPaySML dogs as of July 22 were Fifth Street Finance, Gladstone Investment, Prospect Capital, Fifth Street Senior, and Veresen, whose prices ranged from $5.48 to $10.86.

The five higher-priced MoPaySML dogs for July 22 were Orchid Island Capital, DirectCash Payments Inc., Capitala Finance Corp., American Capital Agency, and Armour Residential REIT, whose prices ranged from $11.04 to $21.05.

This distinction between five low-priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed for beating the Dow. It also works well for teasing bargains out of this list of top-yielding MoPay equities, as you see.

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. It's also the work analysts got paid big bucks to do.

A caution is advised, however, as analysts are historically 20-80% accurate on the direction of change and about 0-20% accurate on the degree of the change.

Annual Analyst Accuracy

You see below the 1-year result of ten analyst target estimates for Dow stocks per Yahoo from this article from July 24, 2015. These were applied to the "basic method" Michael B. O'Higgins employed for beating the Dow. The key shows: losses in a reddish tint; poor results tinted yellow; gains tinted green; and no tint means no difference.

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The "basic method" top ten annual analyst accuracy score for the Top Ten Monthly Pay Stocks by yield between July 24, 2015 and July 22, 2016 was eight losses and two gains. Two higher-priced dogs were gainers for the year. This group of MoPays showed a 25% positive result for the year.

The stocks listed above were suggested only as decent starting points for a MoPay dog dividend stock investment research process in mid-July 2016. These were not recommendations.

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.

See my instablog for specific instructions about how to best apply the dividend dog data featured in this article.

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A top-performing DOTW dog for the first quarter has been named. A second quarterly winner was discovered May 13. For a free copy of both quarterly reports and analysis of the winning Arnold Q1, Q2m and Q3 August picks, send your e-mail address, ticker symbol for your favorite dividend stock, and name of your favorite team of any sport or activity to: fredrika120@gmail.com. Remember: E-mail, ticker, team!

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 ycharts.com; dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.

Disclosure: I am/we are long ARR, FSC, GE, INTC, CSCO, PFE, 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.

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.