It's All Bullish For Monthly Pay Dividend Dogs And Dow August 8

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

Summary

61 monthly paid dividend (MoPay) Small, Mid, & Large capitalized equity (SML) yields ranged 0.37% to 15.34%. 60 SML Funds, Notes & Partnerships (FTPs) ranged 8.55% to 19.75% August 8.

Top ten MoPay dividend equities continued bullishly averaging 11.4% yield. Ten MoPay FTPs charged too, averaging 15.08%, and ten Dow Dogs advanced, averaging 3.65% yield.

Analyst 1yr. targets spotted thirty MoPay equities averaging 0.857% upsides but posting 8.78% net gains. FTPs, though not targeted by analysts, measured 11.90% in top 30 gains by yield.

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

Ten top yield SML equities projected 1.55% LESS gain from $5k invested in the lowest priced five than from $5K in all ten.

Sixty-One MoPay SML Dog Equities

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 8//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.

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."

MoPay SML Dogs August 8

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 Found Bargains

Sixty-one small, mid, and large cap monthly dividend paying equities were pulled from 755 equities of all sizes for this article. Closed End Funds, ETFs and 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, and seven financial service firms, covering two of the eleven Morningstar business sectors.

Again, real estate and financial firms dominated the top 10 list and loaded the master list of sixty-one with nineteen 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]. The two other real estate entities followed in fifth, and sixth places, ARMOUR Residential REIT (NYSE:ARR) [5], American Capital Agency (NASDAQ:AGNC) [6].

The seven Financial services representatives placed themselves in second through fourth, and seventh through tenth places: Capitala Finance Corp. (NASDAQ:CPTA) [2]; Fifth Street Finance (NASDAQ:FSC) [3]; Prospect Capital Corporation (NASDAQ:PSEC) [4]; DirectCash Payments Inc. (DCI.TO) [7]; Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) [8]; PennantPark Floating Rate (NASDAQ:PFLT) [9]; Gladstone Investment (NASDAQ:GAIN) [10] to complete the August 8th MoPay SML top yield ten dog list.

MoPay Funds, Trusts, & 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 August to determine the top ten.

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

Second dog was the lone ETN: ETRACS Monthly Pay 2X Leveraged Mortgage REIT ETN (NYSEARCA:MORL) [2].

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

Actionable Conclusions: (1) MoPay SML Dogs Rallied Bullishly; (2) Funds, Trusts, & Notes Were Also Bullish; (3) Dow Dogs Charged Into Their Widest State of Overbought

After July, MoPaySML top ten dogs continued their charge as dividend fell and price increased to stay bullish. Dividend dropped 7.2%, while aggregate single share price of the ten rose 11.8%.

Meanwhile, MoPay fund, trust & partnership top ten dogs charged strongly after July. Dividend fell 10.15%, while aggregate single share price of those ten equities rose 3.7%.

Dow dogs, continued apace with the MoPay equities to make a record overbought gap. Aggregate single share price for the ten Dow dogs soared 3.3% after July, while annual dividend from $10k invested as $1K in each of the top ten dropped 1.9% 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) expanded to a new gap record.

Actionable Conclusion (3): How The New Dow Overbought Gap Happened

In September, 2015, the gap shrank to $279 or 67%. October expanded the chasm again to $323 or 82%. November-December constricted the gap somewhat to $271 or 70%.

January. 2016 narrowed the gap more to $246 or 57%. In February, the gap of Dow price over dividend grew to $265 or 65%. But through March the gap grew to $400 or 104% as of 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%. Price action brought the gap to $414 or 114% as of July. August opened up the latest record gap between low dividend and high share price to $446 or 125%.

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 August 8 was $27.47.

Actionable Conclusion (4): The MoPay Share 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 August 8 SML MoPay equity top ten average price per dollar of annual dividend was $8.79.

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 $6.92. That $1.87 difference below equity share dividend cost may likely be due to trust and fund ability to return capital to investors in addition to dividends.

Actionable Conclusion (5) MoPay REITs & Financial Services Outmatched Industrial & Consumer Sectors 9 To 1 on Upside and Net Gain Lists

Actionable Conclusion (6) Wall St. Analysts Predicted a 5.97% Average 1 yr. Upside for Top 10 MoPaySML Dogs Come August 8, 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.

Actionable Conclusion (7) Yields Averaged 13.88% Annually On August 8 MoPay Top 10 FT&P List

Top ten funds, trusts, & partnerships paying monthly dividends showed yields ranging from 11.96% to 19.75% promising investors strong returns, not counting price appreciation.

Actionable Conclusions: Wall St. Wizards Envisioned (8) A 0.86% Average 1 yr. Upside With (9) A 8.57% Average Net Gain for Top 30 SML Stocks As Of August 8, 2017

Top 30 dogs on the MoPay stock list graphed below show relative strengths by dividend and price as of August 8, 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 3 created the data points for 2016. Projections based on estimated increases in dividend amounts from $1000 invested in the thirty highest yielding stocks and aggregate one-year analyst target share prices from Yahoo Finance divided by 3 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 almost no change in dividend and price in MoPay equites for the coming year. They expect only a 0.29% 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 only 0.07% 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.

Actionable Conclusion (10): Wall St. Brokers Imagined 13.13% Average Net Gains For Top 10 MoPaySML Dogs As Of August 8, 2017

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.

Ten probable profit generating trades revealed by Thomson/First Call in Yahoo Finance for August 8, 2017 were:

Student Transportation, Inc. (NASDAQ:STB) was projected to net $202.77 based on dividend plus the median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 21% less than the market as a whole.

PennantPark Floating Rate Capital was projected to net $173.07 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.

Capitala Finance Corp. was projected to net $143.20 based on the median target price estimate from ten analysts plus dividends less broker fees. A Beta number was not available for CPTA.

Fifth Street Finance was projected to net $132.66 based on dividends plus the median of annual price estimates from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 95% less than the market as a whole.

Fifth Street Senior Floating was projected to net $132.50 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.

Whitestone REIT (NYSE:WSR) was projected to net $124.08 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 equal to the market as a whole.

Gladstone Investment was projected to net $113.65 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.

Independence Realty Trust was projected to net $100.17 based on dividends plus the median of annual price estimates from six analysts less broker fees. A Beta number was not available for IRT.

Bluerock Residential (NYSEMKT:BRG) was projected to net $100.17 based on dividends plus the median of annual price estimates from six analysts less broker fees. A Beta number was not available for BRG.

Chatham Lodging Trust (NYSE:CLDT) was projected to net $91.52 based on the median target price estimate from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 7% less than the market as a whole.

The average net gain in dividend and price was 13.13% on $10k invested as $1k in each of these ten MoPay dogs. The averaged Beta number showed this estimate subject to volatility 37% less than the market as a whole.

Actionable Conclusion (11): (Bear Alert) Analysts Predicted Two MoPay SML Dogs To Lose An Average of 4.4% By August, 2017

Two probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 was:

ARMOUR Residential REIT was projected to lose $36.51 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 13% less than the market as a whole.

Prospect Capital was projected to lose $51.96 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 13% less than the market as a whole.

The average net loss in price plus broker fees including annual dividends was predicted to be 4.42% on $2k invested as $1k in each of these two MoPay dogs. This loss estimate was subject to average volatility 35% less than the market as a whole.

How Does The Analyst Estimated Lowest Loser MoPay Stock Compare to The Highest Gainer In Price History For the Past Quarter?

Price performance of Student Transportation versus Prospect Capital, the two extreme ends of Monthly Pay equity upside results, show a positive path for both the red-lined "low dog" PSEC and a less robust uptrend for the analyst-favored STB in blue tracked the past 3 months (May 10 to August 9).

Perhaps it is reassuring that, whether you buy the highest rated MoPay performer or the lowest, either has a certain amount of upside momentum going for it.

Dog Metrics Found LESS Gain In Smallest MoPay Dividend Dogs

As noted above, ten top monthly pay SML Cap dividend stocks this week by yield included three real estate firms, and seven financial service firms, covering two of the eleven Morningstar business sectors. As of market close, August 8, MoPay leaders by yield were as follows:

Actionable Conclusions: Analysts Advised (12) 5 Lowest Priced of Top Ten High Yield MoPay SMLs Would Deliver 9.61% VS. (13) 9.76% Net Gains from All Ten

$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 1.55% LESS net gain than $1k invested in each of all ten. The sixth lowest priced MoPaySML dog, PennantPark Floating Rate , was projected to deliver the best net gain of 17.31%.

Lowest priced five MoPaySML dogs as of August 8 were: Fifth Street Finance; Prospect Capital; Gladstone Investment; Fifth Street Senior; Orchid Island Capital, whose prices ranged from $5.83 to $10.95.

The higher priced five MoPaySML dogs for August 8 were: PennantPark Floating Rate ; DirectCash Payments Inc. (DCI.TO); Capitala Finance Corp.; American Capital Agency; Armour Residential REIT, whose prices ranged from $12.69 to $23.02.

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 sometimes also works well for teasing bargains out of this list of top yielding MoPay equities, as you will likely see next 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 August 19, 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.

The "basic method" top ten annual analyst accuracy score for The Top Ten Monthly Pay Stocks by yield between August 19, 2015 was seven losses, two poor showings and one gain. One higher price dogs was a gainers for the year. This group of MoPays showed a 20% positive result for the year. These 2015 MoPays failed to live into analyst expectations.

Stocks listed above were suggested only as decent starting points for a MoPay dog dividend stock investment research process in mid-August, 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: fark.com.

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