Monthly Pay SML Dogs Gain Members But Little Movement In May

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Includes: AGNC, ARR, BRG, CLDT, CLM, CPTA, GAIN, GGN, GLQ, IGD, IRT, MORL, NCV, NCZ, NHF, OCSI, OCSL, ORC, PFLT, PHK, PSEC, STB, VET
by: Fredrik Arnold

Summary

43 monthly pay dividend (MoPay) Small, Mid, & Large capitalized (SML) dog yields ranged 0.77% to 15.64%; 50 SML Funds, Notes & Partnerships (FTPs) spanned 8.2% to 23.1% May 16.

Top 10 MoPay dividend stocks turned barely bullish while averaging 12.59% yield. 10 MoPay FTPs mixed down averaging 14.92%, while Dow Dogs barely mixed up averaging 3.84% yield.

Analyst one-year targets pegged 30 MoPay stocks at 5.89% upsides and 13.58% net gains. FTPs are not tracked by analysts but their top 30 gains calculated by yield averaged 12.77%.

Top SML gaining stocks were: CLDT, IRT, STB, WSR, PFLT, GAIN, CPTA, FSC, FSFR, VET leading. Top FTPs were: GLQ, PHK, GGN, IGD, NCV, NCZ, NHF, EDF, MORL, and CLM leading.

10 top yield SML stocks projected 13.05% more net gain from $5k invested in the lowest priced five than from $5K in all 10.

43 MoPay SML Stocks Go To Market

Yield (dividend/price) results from here verified by Yahoo Finance for monthly dividend paying Small, Mid, & Large cap (MoPaySML) stocks as of market closing prices 5/16/16 revealed the actionable conclusions discussed below. Small cap firms were valued at $200M(illion) to $2B(illion), Mid cap firms were worth $2B to $10B, and Large caps were valued above $10B. The same scale was used to select funds, trusts, and notes based on their net asset value.

A stock paying a reliable, repeating dividend whose price has fallen to a point where its yield (dividend/price) has grown higher than its peers (here in the Monthly Pay collection ) is tagged as a dividend dog. Thus, the highest yielding stocks in any collection become known as "dogs."

See my most recent Dow 30 article for an explanation of the term "dogs" for stocks reported based on Michael B. O'Higgins's book "Beating The Dow" (HarperCollins, 1991), now named Dogs of the Dow. O'Higgins's 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 Posted Bargains

43 small, mid, and large cap monthly dividend-paying stocks were pulled from 755 equities of all sizes for this article. Closed End Funds, ETFs and ETNs were excluded here and Preferred Shares were included in the FTP list. Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs), Royalty Trusts (RTs), and Business Development Companies (BDCs) populated the stock 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 coverage is more robust for common stocks. The energy preferred issues that once rode the top of that list have all cut dividends and dropped out.

10 top monthly pay SML Cap dividend stocks this week by yield included four real estate firms, five financial firms, and one energy entity, covering just three of a possible 11 Morningstar business sectors. As usual, real estate and financial firms dominated the top 10 list and loaded the master list of 43 with 15 REITs and nine financial service firms along with six energy issues, four healthcare and one communication service firm and two industrials represented.

A diversified REIT led the top 10 list, Orchid Island Capital (NYSE:ORC) [1]. Three other real estate entities followed in fifth, sixth and 10th places, ARMOUR Residential REIT (NYSE:ARR) [5], American Capital Agency (NASDAQ:AGNC) [6] and Bluerock Residential Growth REIT, Inc. (NYSEMKT:BRG) [10].

Five Financial services representatives followed in second through fourth, seventh and eighth places: Capitala Finance Corp. (NASDAQ:CPTA) [2], Fifth Street Finance (NASDAQ:FSC) [3], Prospect Capital Corporation (NASDAQ:PSEC) [4], Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) [7], and Gladstone Investment (NASDAQ:GAIN) [8].

Finally, a lone energy dog in the top 10 placed ninth, Veresen (VSN.TO) [9], and completed the May 16th MoPay SML top yield 10 dog list.

Monthly Pay Dividend Funds, Trusts, & Partnerships by Yield

49 small closed end funds and one small ETF were culled from nearly 700 monthly dividend paying (MoPay) funds, trusts and by yields calculated as of May 16 to determine the top ten.

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

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

Top dog and leader of the nine CEFs was, Cornerstone Strategic Value Fund, Inc. (NYSEMKT:CLM) [1].

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

Actionable Conclusions: (1) MoPay SML Dogs Were Barely Bullish; (2) Funds, Trusts, & Notes Mixed Down; (3) Dow Dogs Also Mixed Up, Staying Overbought

After May 6, MoPaySML top 10 dogs' dividend fell and price rose slightly to be a bit bullish. Dividend dropped 1.9%, while aggregate single share price of those 10 equities increased 2%.

At the same time, MoPay Funds, Trusts & Partnership top 10 dogs dropped in both dividend and price to mix down. Dividend tumbled 0.85%, while aggregate single share price of those 10 equities declined 2.7%.

Dow dogs, however, were a little mixed up with aggregate single share price for the 10 rising 0.5% during the days from May 6 to 16, while annual dividend from $10k invested as $1k in each of those 10 dogs rose 0.14% for the period according to IndexArb. The mix up was entirely due to price and dividend movement no replacements happened in the top 10.

As a result, the Dow dogs overbought condition (in which aggregate single share price of the 10 above projected annual dividend from $10k invested as $1k each in those 10) barely changed.

Actionable Conclusion (4): Dow Dogs Stay Overbought

June saw the overbought gap of price over dividend at $392 or 106%. The July market dropped the gap to $237 or 63%. August 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 slightly to $246 or 57%. In February, when $30 Intel (NASDAQ:INTC) with its dividend dollar replaced Procter & Gamble's (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 10 in March to join big dogs IBM (NYSE:IBM) and Boeing (NYSE:BA) to move the gap to $400 or 104% as of 4/1/16. A May 6 price retreat brought the price over dividend gap down to $350 or 91%. As of the 16th, the gap was $359 or 94%.

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 10 average price per dollar of annual dividend May 16 was $26.29.

Actionable Conclusion (5): Price Advantage to Preferred MoPay Shares

Conversely, the MoPay dog charts for either stocks or FTPs show those dogs to be volatile, high risk, though potentially more rewarding pups than those of the Dow. The May 16 SML MoPay stocks top 10 average price per dollar of annual dividend was $7.92.

The opportunity gaps, and price per dividend dollar in fact, point to an advantage for funds, trusts and preferred stocks in the MoPay universe. The SML MoPay FTP stocks top 10 average price per dollar of annual dividend was $6.42, which is likely $1.50 lower due to the trust's and fund's ability to return capital to investors in addition to dividends.

Actionable Conclusion (6) REITS & Financial Services Outnumber Energy & Industry 8 To 2 on Upside and Net Gain Lists

Actionable Conclusion (7) Wall St. Analysts Projected a 18.19% Average one-year Upside for Top 10 MoPaySML Dogs Come May 16, 2017

One-year median target price set by brokerage analysts multiplied by the number of shares in a $1k investment revealed 10 stocks showing the highest upside price potential into 2017 out of 30 selected by yield in 2016.

Actionable Conclusion (8) Annual Yields Average 14.9% For May 16 MoPay Top 10 FT&P List

Top 10 funds, trusts, but no preferreds paying monthly dividends showed yields ranging from 12.8% to 21.25% promising investors strong returns not counting price appreciation.

Actionable Conclusions: Wall St. Wizards Envisioned (9) A 5.89% Average one-year Upside and (10) A 13.59% Average Gain for Top 30 SML Stocks As Of May 16, 2017

Top 30 dogs on the MoPay stock list graphed below show relative strengths by dividend and price as of May 16, 2016 and those projected by analyst mean target price estimates to the same date in 2017.

A hypothetical $1k 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 $1k invested in each of the highest yielding stocks and the aggregate single share prices of those 30 stocks divided by three created the data points for 2016. Projections based on estimated increases in dividend amounts from $1k invested in the 30 highest yielding stocks and aggregate one-year analyst target share prices from Yahoo Finance divided by three created the 2017 data points on the chart below: green for price and blue for dividend.

Yahoo reported Thomson/First Call analyst survey numbers that predicted a 5.1% lower dividend from $10k invested as $1k in the average 10 of this group, while aggregate single share price of those 10 was estimated to increase over 4.5% 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 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 one meant the stock's price would move with the market. Less than one showed lower than market movement. Higher than one showed greater than market movement. A negative beta number indicated the degree of a stock price movement opposed to market direction.

Actionable Conclusion (11): Wall St. Expects 26.17% Average Net Gains For Top 10 MoPaySML Dogs As Of May 16, 2017

This week, four of the 10 top dividend yielding MoPaySML dogs were verified as being among the top 10 by upside and gain for the coming year based on analyst one-year target prices. So, for this period, dog methodology graded by Wall St. wizards was 40% accurate.

10 probable profit generating trades revealed by Thomson/First Call in Yahoo Finance for May 16, 2017 were:

Vermillion Energy, Inc. (NYSE:VET) was projected to net $388.81 based on the median target price estimate from three analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.

Fifth Street Senior Floating Rate Corp. was projected to net $305.30 based on the median target price estimate from four analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 89% less than the market as a whole.

Fifth Street Finance was projected to net $297.65 based on dividends plus the median of annual price estimates from 10 analysts less broker fees. The Beta number showed this estimate subject to volatility 96% less than the market as a whole.

Capitala Finance Corp. was projected to net $282.17 based on the median target price estimate from 12 analysts plus dividends less broker fees. A Beta number was not available for CPTA.

Gladstone Investment was projected to net $273.35 based on the median target estimate from two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 29% less than the market as a whole.

PennantPark Floating Rate Capital (NASDAQ:PFLT) was projected to net $242.72 based on dividends plus median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 38% less than the market as a whole.

Whitestone REIT was projected to net $231.09 based on dividends plus the median of annual price estimates from five analysts less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.

Student Transportation, Inc. (NASDAQ:STB) was projected to net $218.33 based on dividend plus the median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 14% less than the market as a whole.

Independence Realty Trust, Inc. (NYSEMKT:IRT) was projected to net $215.07 based on a median target price estimate from six analysts combined with its projected annual dividend less broker fee. A Beta number was not available for IRT.

Chatham Lodging Trust (NYSE:CLDT) was projected to net $162.31 based on dividends plus the median of annual price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 11% less than the market as a whole.

The average net gain in dividend and price was 26.17% on $10k invested as $1k in each of these 10 MoPay dogs. The averaged Beta number showed this estimate subject to volatility 19% less than the market as a whole.

Dog Metrics Extracted More Bargains

As noted above, 10 top monthly pay SML Cap dividend stocks this week by yield included four real estate firms, five financial firms, and one energy entity, covering just three of a possible 11 Morningstar business sectors. Financial and real estate firms loaded the top 10. As of market close, May 16, MoPay leaders by yield were as follows:

Actionable Conclusions: Analysts Estimated (12) 5 Lowest-Priced of Top 10 High Yield MoPay SMLs Deliver 19.38% Vs. (13) 17.14% Net Gains from All 10 As Of May 16, 2017

$10k invested as $2k in each of the five lowest priced stocks in the top 10 MoPaySML kennel by yield were predicted by analyst one-year targets to deliver 13.05% more net gain than $1k invested in each of all 10. The third lowest priced MoPaySML dog, Fifth Street Senior Floating Rate Corp., was projected to deliver the best net gain of 30.53%.

Lowest priced five MoPaySML dogs as of May 16 were Fifth Street Finance, Gladstone Investment, Fifth Street Senior Floating Rate Corp., Prospect Capital, and Veresen, whose prices ranged from $5.10 to $9.63.

The higher priced five MoPaySML dogs for May 16 were Orchid Island Capital, Bluerock Residential Growth REIT, Inc., Capitala Finance Corp., American Capital Agency, and Armour Residential REIT, whose prices ranged from $10.74 to $20.04.

This distinction between five low-priced dividend dogs and the general field of 10 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% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of the change.

All the stocks listed above were suggested only as decent starting points for a MoPay dog dividend stock investment research process in mid-May, 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.

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