BRG Leads Monthly Pay Dividend SML Dogs In October

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Includes: AGNC, ARR, BRG, CEFL, CJREF, CLDT, CLM, CPTA, DMO, EDF, EHI, FSC, FSFR, GNL, IRT, MORL, NCV, NCZ, NHF, ORC, PHK, PSEC, WSR
by: Fredrik Arnold

Summary

Sixty US & Canadian (30ea.) monthly paying dividend (MoPay) Small, Mid, & Large cap (SML) equity yields ranged 4.83% to 16.72%. 60 SML Funds ranged 7.66% to 22.89% October 7.

Both US & Canadian top 10 MoPay equities mixed down averaging 10.66% & 9.80 yields, respectively. Ten MoPay Funds charged, averaging 14.68%, and ten Dow Dogs retreated, averaging 3.74% yield.

Analyst 1yr. targets showed thirty MoPay equities averaging 3.49% upsides but posting 10.74% net gains. Funds, though not targeted by analysts, averaged 11.60% in top 30 gains by yield.

Top gaining equities were: AGNC; FSFR; CJREF; FSC; IRT; ORC; CLDT; CPTA; WSR; with BRG leading. Funds were: EHI; DMO; NCV; NCZ; PHK; NHF; EDF; CEFL; MORL; with CLM leading.

Ten top yield SML equities projected 7.04% more gain from $5k invested in the lowest priced five than from $5K in all ten.

October SML MoPay Equity Dogs

Yield (dividend / price) results from here verified by Yahoo Finance for 51 US and 60 Canadian monthly dividend paying Small, Mid, & Large cap (MoPaySML) equities as of market closing prices 10/7/16 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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The Dividend Dogs Rule

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."

MoPays Of October 7

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. 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 Uncovered Bargains

One hundred eleven small, mid, and large cap monthly dividend paying equities were pulled from 1080 equities of all sizes for this article. Closed End Funds, ETFs and ETNs were excluded here and preferred shares are no longer counted. 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.

The equity lists are now split with 51 representing the MoPay SML population on USA exchanges and 60 from the Canadian stock exchanges.

The USA Equity List

Ten top USA monthly pay SML Cap dividend stocks this week by yield included five real estate firms, four financial service firms, and one consumer cyclical firm to cover 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-one with twenty-four REITs, and ten financial service firms, along with nine energy issues, two consumer cyclical, two industrial, one utility, one healthcare, one communication services, and one basic materials firm represented. Only consumer defensive and technology sectors were missing from the USA monthly dividend equity SML payor list.

A diversified REIT led the top ten USA list by yield, Orchid Island Capital (NYSE:ORC) [1]. The four other real estate entities followed in fifth, sixth, eighth, and tenth places, ARMOUR Residential REIT (NYSE:ARR) [5], American Capital Agency (NASDAQ:AGNC) [6], Bluerock Residential REIT (NYSEMKT:BRG) [8], and Global Net Lease (NYSE:GNL) [10].

The four financial services representatives placed themselves in second through fourth, and seventh places: Prospect Capital Corporation (NASDAQ:PSEC) [2]; Fifth Street Finance (NASDAQ:FSC) [3]; Capitala Finance Corp. (NASDAQ:CPTA) [4]; Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) [7]. The lone consumer cyclical member placed ninth, Corus Entertainment (OTCPK:CJREF) [9] to complete the USA October 7 MoPay SML top yield ten dog list.

The Canada Equity List

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Ten top Canadian exchange monthly pay SML Cap dividend stocks this week by yield included one energy firm, two financial service firms, six real estate firms, and one consumer cyclical, to cover four of the eleven Morningstar business sectors.

In Canada, too, real estate and financial firms dominated the top 10 list and loaded the master list of sixty with twenty-four REITs, and six financial service firms, along with ten energy issues, six consumer cyclical, seven industrials, three utilities, three healthcare, and one basic materials firm represented. Only consumer defensive, communication services and technology sectors were missing from the 60 Canadian monthly dividend equity SML payor list.

A lone energy firm led the top ten CAN list by yield, Northern Blizzard (NBZ.TO) [1]. One of two financial service firms placed second, Dividend 15 Split Corp (DFN.TO) [2]. The other financial placed tenth, Timbercreek Financial (TF.TO) [10].

The leader of six REITs placed third, Cominar REIT (CUF-UN.TO) [3]. The five other real estate entities followed in fifth, through ninth places, Dream Industrial REIT (DIR-UN.TO) [5], Artis REIT (AX-UN.TO), Slate Office REIT (SOT-UN.TO), Dream Global REIT (DRG-UN.TO) [8], and Dream Office REIT (D-UN.TO) [9].

The lone consumer cyclical member placed fourth, Corus Entertainment (CJR-B.TO) [4], to complete the Canadian exchanges October 7th MoPay SML top yield ten dog list.

MoPay All Funds by Yield

55 small closed end funds [CEFs], plus two mid cap CEFs, two small ETNs and one small ETF were culled from nearly 800 monthly dividend paying (MoPay) funds, trusts and partnerships by yields calculated as of October 7 to determine the top ten.

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Ten monthly All Funds showing the biggest yields (revealed by YCharts.com and verified using Yahoo Finance data) this week consisted of eight closed-end funds, and two ETNs.

In the top spot was leader of the CEFs, Cornerstone Strategic Value Fund, Inc. (NYSEMKT:CLM) [1].

Second dog was UBS E-TRACS Mthly Pay 2x Mortg REIT ETN (NYSEARCA:MORL) [2]. Third place went to UBS E-TRACS Mthly Pay 2x ClosedEnd ETN (NYSEARCA:CEFL) [3].

Fourth through tenth belonged to the remaining seven CEFs: Stone Harbor Emerging Mkts (EDF) [4]. NexPoint Credit Strategies Fund (NYSE:NHF) [5]; PIMCO High Income (NYSE:PHK) [6]; AllianzGI Convertible & Income II (NYSE:NCZ) [7]; AllianzGI Convertible & Income (NYSE:NCV) [8]; Western Asset Mortgage Defined Opp (NYSE:DMO) [9]; Western Asset Global High (NYSE:EHI) [10], to round out this early-October All Funds top ten list.

Actionable Conclusions: (1) US & CAN MoPay SML Dogs Mixed Down; (2) All Funds Charged; (3) Dow Dogs Retreated From Their Most Overbought Spread

After September, US & Canadian MoPaySML top ten dogs mixed down as both dividend and price fell.

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USA Dividend fell 0.59%, while aggregate single share price of the ten dropped 3.9%.

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Canadian equities mixed down also as dividend fell 15.67%, while aggregate single share price of the ten dropped 17.5%.

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Meanwhile, All MoPay Fund top ten dogs charged, after September. Dividend from $10K invested as $1k in each dog fell 0.9%, while aggregate single share price of those ten equities arose 15.7%.

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Dow dogs moved away from their record overbought gap of September. Aggregate single share price for the ten Dow dogs fell 11.3%, while entering October, as annual dividend rose 3% according to IndexArb.

As a result, the Dow dogs overbought condition (in which aggregate single share price of the ten being greater than projected annual dividend) narrowed their gap.

Actionable Conclusion (3): How The Dow Overbought Gap Vacillates

January, 2016 saw the gap at $246 or 57%. In February, the gap grew to $265 or 65%. Then, through March, grew to $400 or 104% for April.

A May price retreat brought the price over dividend gap down to $350 or 91%. June put the gap back up to $386 or 104%. The gap rose to $414 or 114% in July. August 8 opened up a record gap of $446 or 125%. September exceed that mark, pushing the gap to $483 or 132%. October narrowed the chasm to $378 or 101%

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 October 7 was $26.70.

Actionable Conclusion (4): MoPay Price Advantage To All Funds

MoPay dog charts for either stocks or Funds show those dogs to be volatile, high risk, and potentially more rewarding than those of the Dow. The October 7 SML MoPay equity top ten average price per dollar of annual US dividend was $9.18. Canada was $10.42

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 All Funds top ten average price per dollar of annual dividend was $6.69. That $2.50 to $3.50 difference below equity share dividend cost may be due to trust and fund ability to return capital to investors in addition to dividends.

Actionable Conclusion (5) Lone Consumer Sector & Industrial Dogs on MoPay Upside and Net Gain Lists Surrounded By 4 REITs & 4 Financial Services

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Actionable Conclusion (6) Wall St. Analysts Alleged a 14.74% Average 1 yr. Upside for Top 10 MoPaySML Dogs Come October 9, 2017

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

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Actionable Conclusion (7) Yields Averaged 13.68% Annually For August 19 MoPay FT&P Top 10 List

Top ten closed end funds, ETFs, & ETNs paying monthly dividends showed yields ranging from 11.48% to 22.89% promising investors strong returns, not counting any price appreciation.

Actionable Conclusions: Wall St. Brokers Predict (8) A 3.77% Average 1 yr. Upside With (9) A 12.13% Average Net Gain for Top 40 US & Canadian SML Stocks As Of October 7, 2017

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Top 40 dogs on the MoPay stock list graphed below show relative strengths by dividend and price as of October 7, 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.

Historic prices and actual dividends paid from $1000 invested in each of the highest yielding stocks and the aggregate single share prices of those thirty stocks divided by 4 created the data points for 2016. Projections based on estimated increases in dividend amounts from $1000 invested in the forty highest yielding stocks and aggregate one-year analyst target share prices from Yahoo Finance divided by 4 created the 2017 data points on the chart below: green for price and blue for dividend.

Yahoo reported Thomson/First Call analyst survey numbers predicting little change in dividend and price in MoPay equities for the coming year. They expected a 2,7.% lower dividend from $10K invested as $1k in the average ten of this group, with aggregate single share price of those ten estimated to increase 38.8% 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 price movement opposed to market direction. Note the no Canadian equities provided analyst upside estimates. The result is a list of all US stocks.

Actionable Conclusion (10): Wall St. Brokers Cast 23.24% Average Net Gains For Top 10 MoPaySML US/CAN Dogs As Of October 7, 2017

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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, dog methodology graded by Wall St. wizards was 50% accurate.

Two REITs led the ten probable profit generating trades revealed by Thomson/First Call in Yahoo Finance for October 7, 2017:

Bluerock Residential was projected to net $326.67 based on dividends plus the median of annual price estimates from eight analysts less broker fees. A Beta number was not available for BRG.

Whitestone REIT (NYSE:WSR) was projected to net $321.82 based on a median target price estimate from six analysts combined with its projected annual dividend less broker fee. The Beta number showed this estimate subject to volatility 8% less than the market as a whole.

Capitala Finance Corp. was projected to net $266.45 based on the median target price estimate from eleven analysts plus dividends less broker fees. A Beta number was not available for CPTA.

Chatham Lodging Trust (NYSE:CLDT) was projected to net $258.58 based on the median target price estimate from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 8% more than the market as a whole.

Orchid Island Capital was projected to net $241.69 based on the median target estimate from three analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 31% less than the market as a whole.

Independence Realty Trust (NYSEMKT:IRT) was projected to net $232.34 based on dividends plus the median of annual price estimates from five analysts less broker fees. A Beta number was not available for IRT.

Fifth Street Finance was projected to net 183.80 based on the median target price estimate from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 50% less than the market as a whole.

Corus Entertainment was projected to net $179.78 based on dividend plus the median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 44% less than the market as a whole.

Fifth Street Senior Floating was projected to net 161.82 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.

American Capital Agency was projected to net $151.25 based on dividends plus the median of annual price estimates from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 86% less than the market as a whole.

The average net gain in dividend and price was 23.24% on $10k invested as $1k in each of these ten MoPay dogs. The averaged Beta number showed this estimate subject to volatility 39% less than the market as a whole.

Analyst Estimated Lowest Loser MoPay Stock Price History Surpasses The Highest Gainer By Upside Over The Past 3 Months

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Price performance of Prospect Capital Corporation versus Whitestone REIT, the two extreme ends of Monthly Pay upside results this week, show a slightly positive path for the red-lined "low dog" PSEC and a very negative trend for the analyst-favored WSR in blue since early July 2016 (July 8 to October 7).

Perhaps it is reassuring that the highest rated MoPay performer has a greater amount of upside to gain in coming months. Then, again, could there be an intentional misdirection from analysts?

Dog Metrics Found 7.04% more Gain In Lowest Price Highest Yield MoPay Dividend Dogs

Ten top monthly pay US/CAN SML Cap dividend stocks this week by yield included four real estate firms, one energy firm, and five financial service firms, covering three of the eleven Morningstar business sectors. As of market close, October 7, US/CAN MoPay leaders by yield were as follows:

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Actionable Conclusions: Analysts Advised (12) 5 Lowest Priced of Top Ten High Yield US/CAN MoPay SMLs Would Deliver 15.49% VS. (13) 14.47% 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 US/CAN MoPaySML kennel by yield were predicted by analyst 1 year targets to deliver 7.04% more net gain than $1k invested in each of all ten. The seventh lowest priced MoPaySML dog, Capitala Finance, was projected to deliver the best net gain of 26.64%.

Lowest priced five MoPaySML dogs as of October 7 were: Northern Blizzard; Fifth Street Finance; Prospect Capital; Fifth Street Senior; Orchid Island Capital, whose prices ranged from $3.67 to $10.05.

The higher priced five MoPaySML dogs for October 7 were: Dividend 15 Split Corp; Capitala Finance Corp.; Cominar REIT; American Capital Agency; Armour Residential REIT, whose prices ranged from $10.53 to $21.85.

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 mostly works well for teasing bargains out of this list of top yielding MoPay equities, as you see this week.

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. Its also the work analysts got paid big bucks to do.

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

Annual Analyst Accuracy

You see below the one year result of ten analyst target estimates for Dow stocks per Yahoo from this article from Seeking Alpha of October 8, 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; 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 October 8, 2015 and October 7, 2016, was eight losses, and two gains. Two higher price dogs were gainers for the year. This group of MoPays showed a 20% positive result for the year. These 2015 MoPays failed to perform any where near analyst expectations.

Stocks listed above were suggested only as decent starting points for a MoPay dog dividend stock investment research process in early-October, 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.--Fredrik Arnold

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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. Dog photo: vh1.com

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