Monthly Paid Dividend Dogs: Cornerstone Strategic Value Leads Funds

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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, STB
by: Fredrik Arnold

Summary

121 US & Canadian (51 US; 70 Canada) monthly paying dividend (MoPay) Small, Mid, & Large cap (SML) equity yields ranged .72%-15.89%. Sixty SML Funds ranged 7.74%-24.25% October 14.

US mixed down & Canadian top 10 MoPay equities charged averaging 11.49% & 9.74 yields, respectively. Ten MoPay Funds retreated, averaging 14.488%, and ten Dow Dogs retreated, averaging 3.74% yield.

Analyst 1yr. targets showed 40 US & Canada MoPay equities averaging 2.9% upsides but posting 10.9% net gains. Funds, though not targeted by analysts, averaged 11.92% top yield 30 gains.

Top equities were: CLDT; AGNC; STB; ORC; FSFR; IRT; CJRF; FSC; BRG; with CPTA leading. Top funds were: DMO; EHI; NCV; NCZ; PHK; NHF; EDF; CEFL; MORL; with CLM leading.

Ten top yield SML equities projected 8.21% more gain from $5k invested in the lowest priced five than from $5K in all ten.

Mid-October SML MoPay Equity Dogs

Yield (dividend / price) results from here verified by Yahoo Finance for 51 US and 70 Canadian monthly dividend paying Small, Mid, & Large cap (MoPaySML) equities as of market closing prices 10/14/16 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 14

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 Discovered Bargains

One hundred twenty-one 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 showing up. 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 70 from the Canadian stock exchanges.

The USA Equity List

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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 fourth, sixth, ninth, and tenth places, ARMOUR Residential REIT (NYSE:ARR) [4], American Capital Agency (NASDAQ:AGNC) [6], Bluerock Residential REIT (NYSEMKT:BRG) [9], and Global Net Lease (NYSE:GNL) [10].

Four financial services representatives put themselves in second, third, fifth, and seventh places: Fifth Street Finance (NASDAQ:FSC) [2]; Prospect Capital Corporation (NASDAQ:PSEC) [3]; Capitala Finance Corp. (NASDAQ:CPTA) [5]; Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) [7].

The lone consumer cyclical member placed eighth, Corus Entertainment (OTCPK:CJREF) [8] to complete the USA October 14 MoPay SML top yield ten dog list.

The Canada Equity List

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 seventy with thirty REITs, and seven financial service firms, along with ten energy issues, seven consumer cyclical, eight industrials, three utilities, three healthcare, one basic materials, and one communication services firm represented. Only consumer defensive, and technology sectors were missing from the 70 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 lone consumer cyclical member placed third, Corus Entertainment (CJR-B.TO) [3], while the first of six led the REITs parade from the fourth to ninth slots, Cominar REIT (CUF-UN.TO) [4]. The five other real estate entities followed, Dream Industrial REIT (DIR-UN.TO) [5], Artis REIT (AX-UN.TO) [6], Dream Office REIT (D-UN.TO) [7], Slate Office REIT (SOT-UN.TO)[8], and Dream Global REIT (DRG-UN.TO) [9], to complete the Canadian exchanges October 14th MoPay SML top yield ten dog list.

MoPay SML 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 14 to determine the top ten.

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Ten monthly SML 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 Global High (NYSE:EHI) [9]; Western Asset Mortgage Defined Opp (NYSE:DMO) [10], to round out this mid-October All Funds top ten list.

Actionable Conclusions: (1) US Mixed Down; (2) CAN MoPay SML Equity Dogs Charged; (3) SML Funds & Dow Dogs Retreated

After October 7, US top ten dogs mixed down as both dividend and price fell, while Canadian MoPaySML dogs charged with price rising against falling dividends.

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USA Dividend fell 0.5%, while aggregate single share price of the ten dropped 2.6%.

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Canadian equities charged as dividend fell 0.63%, while aggregate single share price of the ten rose 0.6%.

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Meanwhile, SML MoPay Fund top ten dogs retreated. After October 7, dividend from $10K invested as $1k in each Fund dog soared 5.4%, while aggregate single share price of those ten equities fell 2%.

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Dow dogs shrank further away from their record overbought gap in September. Since October 7, aggregate single share price for the ten Dow dogs fell 0.78%, as annual dividend rose 1% 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 again.

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 moved 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 7 narrowed the chasm to $378 or 101%, and October 17 pushed it down to $369 or 97%.

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 14 was $26.49.

Actionable Conclusion (4): MoPay Price Advantage Goes 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 14 SML MoPay equity top ten average price per dollar of annual US dividend was $8.69. Canada was $10.48

The opportunity gaps, and price per dividend dollar, point to an advantage for funds, trusts and preferred stocks in the MoPay universe. The MoPay SML Funds top ten average price per dollar of annual dividend was $6.35. That $2.34 to $4.13 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 Still Surrounded By 4 REITs & 4 Financial Services

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Actionable Conclusion (6) Wall St. Analysts Asserted a 11.69% Average 1 yr. Upside for Top 10 MoPaySML Dogs Come October 14, 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 13.48% Annually For October 14 MoPay SML Funds Top 10 List

Top ten closed end funds, ETFs, & ETNs paying monthly dividends showed yields ranging from 11.43% to 24.25% promising investors strong returns, not counting price appreciation.

Actionable Conclusions: Wall St. Brokers Predict (8) A 2.91% Average 1 yr. Upside With (9) A 10.98% Average Net Gain for Top 40 US & Canadian SML Stocks As Of October 14, 2017

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Top 40 dogs on the MoPay stock list graphed above show relative strengths by dividend and price as of October 14, 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 1.6% 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 2.8% 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. Wizards Augur 19.75% Average Net Gains For Top 10 MoPaySML US/CAN Dogs As Of October 14, 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.

A financial equity led the ten probable profit generating trades revealed by Thomson/First Call in Yahoo Finance for October 14, 2017:

Capitala Finance Corp. was projected to net $286.55 based on the median target price estimate from eleven analysts plus dividends less broker fees. A Beta number was not available for CPTA.

Bluerock Residential was projected to net $282.18 based on dividends plus the median of annual price estimates from eight analysts less broker fees. A Beta number was not available for BRG.

Fifth Street Finance was projected to net $222.42 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 $215.36 based on dividend plus the median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 46% less than the market as a whole.

Independence Realty Trust (NYSEMKT:IRT) was projected to net $212.18 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 Senior Floating was projected to net $187.90 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.

Orchid Island Capital was projected to net $179.62 based on the median target estimate from three analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 11% less than the market as a whole.

Student Transportation (NASDAQ:STB) was projected to net $130.85 based on a median target price estimate from four analysts combined with its projected annual dividend less broker fee. The Beta number showed this estimate subject to volatility 27% less than the market as a whole.

American Capital Agency was projected to net $129.38 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.

Chatham Lodging Trust (NYSE:CLDT) was projected to net $128.67 based on the median target price estimate from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 8% more than the market as a whole.

The average net gain in dividend and price was 19.75% on $10k invested as $1k in each of these ten MoPay dogs. The averaged Beta number showed this estimate subject to volatility 40% less than the market as a whole.

Analyst Estimated Lowest Downside MoPay Stock Price Equity Surpasses The Highest Upsider Over The Past 3 Months

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Price performance of ARMOUR Residential REIT versus Bluerock Residential Group , the two extreme ends of Monthly Pay upside results this week, show a moderately positive path for the red-lined "low dog" ARR and a somewhat negative trend for the analyst-favored BRG in blue since mid-July 2016 (July 15 to October 14).

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 mis-casting from analysts?

Dog Metrics Found 8.21% 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 three real estate firms, one energy firm, five financial service firms, and one consumer cyclical entity, covering four of the eleven Morningstar business sectors. As of market close, October 14, 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 15.57% VS. (13) 14.39% 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 8.21% more net gain than $1k invested in each of all ten. The eighth lowest priced MoPaySML dog, Capitala Finance, was projected to deliver the best net gain of 28.65%.

Lowest priced five MoPaySML dogs as of October 14 were: Northern Blizzard; Fifth Street Finance; Prospect Capital; Fifth Street Senior; Orchid Island Capital, whose prices ranged from $3.71 to $10.57

The higher priced five MoPaySML dogs for October 14 were: Dividend 15 Split Corp; Corus Entertainment; Capitala Finance Corp.; American Capital Agency; Armour Residential REIT, whose prices ranged from $10.61 to $22.02.

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 16, 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.

MOPYSML/10 (4) ANALYSTLIST OC14/15-16

The "basic method" top ten annual analyst accuracy score for The Top Ten Monthly Pay Stocks by yield between October 15, 2015 and October 14, 2016, was seven losses, one poor performance and two gains. One high price dog and one low price dog proved to be 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. This set of energy dogs prove that troubled sectors rise in yield as their bubbles deflate, until they burst.

Stocks listed above were suggested only as decent starting points for a MoPay dog dividend stock investment research process in mid-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

Three of these monthly paying dividend pups qualify as valuable catches! They are listed with the now 52 Dogs Of The Week (DOTW) found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.

Top performing DOTW dogs for the first through third quarters have been named. A fourth quarterly winner will be announced November 16.

Root for the Underdog at the free for all first annual dividend dog of the year award webinar on shindig. November 16 at 11AM to Noon EST. Go here to reserve your seat: http://events.shindig.com/event/dogofyearaward.

For a free copy of the monthly top dog list, including updates on the Q1, Q2, and the Q3 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. Dog photo: pinterest.com.

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