The Dividend Dogs Rule
Stocks earned the "dog" moniker by exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) their yield (dividend/price) grew higher than their peers. Thus, the highest-yielding stocks in any collection became known as "dogs." More specifically, these are, in fact, best called "underdogs."
January MoPay Dividend Dog Data
Three buy and hold lists produced ten actionable conclusions and several more un-numbered issues. To draw these conclusions and issues, December 30 closing prices and estimated annual dividends were referenced. Monthly pay (MoPay) equity (1) yield and (2) upside potential lists were compared and contrasted against (3) a high-yield (and higher-risk) MoPay CEICs/ETFs/ETNs list.
Monthly Pay Dividend Qualities
Quarterly, semi-annual and annual dividend investors anxiously await announcements from a firm, fund or brokerage to learn if their next dividend will be higher, lower or paid at all. Monthly pay stocks, funds, trusts and partnerships inform the holder every four and one-third weeks by check and/or statement. If the entity reduces or suspends a payment, the holder can sell out of the investment immediately to cut future losses.
This advantage has been curtailed when companies suddenly cut monthly dividends to save cash. Some 2016 examples were: Gold Resource Corp. (NYSEMKT:GORO) cut dividends 80% from $.01 to $.002 per month on January 6, then to $.0016 on February 6; Hugoton Royalty Trust (NYSE:HGT) declared no cash dividends on January 19 and on February 19; Nasdaq suspended trading of United Development Funding IV (NASDAQ:UDF) on February 18 (after an FBI raid of UDF offices). In April, Vanguard Natural Resources (NYSE:VNR) and Full Circle Capital Corporation (NASDAQ:GECC) suspended their monthly payouts, while newcomer to this list, Black Diamond Group (OTCPK:BDIMF), cut its payout in half. July 27 venerable American Capital Agency (NASDAQ:ACAS) announced a reduction to its MoPay dividend from $.20 to $.18. Top yield dog for October, Orchid Island Capital (NYSE:ORC), released this cautionary note with its monthly dividend announcements, "The Company has not established a minimum distribution payment level and is not assured of its ability to make distributions to stockholders in the future." Thus, it is evident that the segment is volatile.
"[A] problem with this analysis is you are comparing companies of VERY different varieties. REITs pay no taxes and their distributions are classified as ordinary income and thus not subject to the 15% or 20% tax rate. MLPs also pay little no taxes at the corporate level, but instead have "distributions"... Comparing REITs, MLPs and regular corporations thus requires a financial analysis...not include[d]." - arbtrdr
"[Y]ou list a few issues here whose distributions are rife with RETURN OF CAPTAL [ROC] at its most destructive form, funds that pay you back your own money each and every month in their distributions with no regard to what they truly earn... - these should not be included in any list containing the word "dividend". - NYer1
"I can enter or exit a position and still reap dividends for at least 2/3s of the quarter. They also smooth the income stream so I have cash at any given time to make a purchase at dips." - Ed Invests
"Dividend dog investing really works well for income in my experience. I have been seriously invested in dogs the more unloved the better." - Urbannek
"... Nice to see another contrarian strategy. This one seems to take a lot of attention in comparison [to Dow dogs], but I like the monthly rebalance." - colodude
"At this level of risk, I'm only buying monthly dividend payers. Dividend if cut only [sits] for a month and not a quarter." - Sinjin Smythe
"... love those monthly payers." - Hardog
"Some of us are comfortable investing in Dog stocks because we feel the reward is worth the risk. As long as [my sin stock] continues to pay and raise the dividend like it has for 16 years now, it will have a spot in my portfolio." - Miz Magic DiviDogs
"One thing to point out: These stocks are not buy & hold. If you buy any of these stocks, set a price where you will sell... trailing stops work real good & with mopays you can get out & get back in without losing a whole quarter of dividends..." - drking
"I don't know how many times I've kicked myself for not investing in a beaten down group only to find it spring back up months later." - User 13258352
Dividend Dog Data
For this article, seventy-five dividend equities from US exchanges, plus one hundred and forty-two from Canada's exchanges, plus eighty funds, trusts and partnership shares were culled from nearly 900 entities (listed here) paying monthly returns. All were ranked as of December 30, 2016, using two key dog performance metrics: (1) stock price; (2) annual dividend. Dividing the annual dividend by the price gave the percentage yield by which each dividend dog stock was ranked.
List One (A): US Monthly Pay Dividend Equities by Yield
The top ten of these US exchange-traded monthly pay dividend equities showing the best yields into January represented three of the eleven Morningstar market sectors, real estate, financial services and energy. Top dog for January was one of five real estate pups, Orchid Island Capital .
The remaining four YCharts' data revealed real estate sector dogs placed third through fifth, and eighth: Wheeler Real Estate IT (NASDAQ:WHLR); ARMOUR Residential REIT (NYSE:ARR) ; Five Oaks Investment Corp. (NYSE:OAKS) ; and AGNC Investment (NASDAQ:AGNC) .
Financial sector stocks filled four of the remaining five slots, in second, sixth, seventh and ninth place: Fifth Street Finance (NYSE:FSC) ; Capitala Finance (NASDAQ:CPTA) ; Prospect Capital Corporation (NASDAQ:PSEC) ; and Mesa Royalty (NYSE:MTR) .
Finally, the lone energy sector representative, San Juan Basin Royalty Trust (NYSE:SJT), placed tenth to complete the January MoPay top ten dog list by yield.
List One (B): Canada Monthly Pay Dividend Equities by Yield
The top ten of these Canadian exchange-traded monthly pay dividend equities showing the best yields into January represented just two of the eleven Morningstar market sectors: real estate and financial services. Top dog for January was one of eight financial service dogs, Financial 15 Split (OTC:FNNCF, FTN.TO) .
The remaining seven YCharts revealed financial sector dogs placed second through seventh, and tenth: Noranda Income Fund (OTC:NNDIF, NIF-UN.TO) ; Energy Leaders Plus Inc. (HPF-UN.TO) ; Marquest Canadian Equity (MIF-UN.TO) ; Brompton Oil Split (OSP.TO) ; Energy Leaders Income (HEN-UN.TO) ; Dividend 15 Split Corp. (OTC:DVSPF, DFN.TO) ; and Dividend Select 15 (DS.TO) , respectively.
Real estate sector stocks filled the two remaining Canadian slots, in eighth and ninth place: Cominar REIT (OTCPK:CMLEF, CUF-UN.TO)  and PRO REIT (PRV-UN.V)) , respectively, to fill out the January MoPay top ten Canada MoPay top dog list by yield.
List Two: Monthly Pay Dividend Stocks by Price Upside
Results from YCharts for monthly paying (MoPay) dividend stocks as of the market closing price on December 30 were compared with analyst mean target prices one year out as reported by Yahoo Finance. Ten top stocks displayed 7.5% to 47% price upsides for the coming year based on analyst 1-year targets.
Five stocks of ten on the price upside list also made the top ten list by yield. Three of those top upside performers by yield made this upside list in the first three places: Wheeler Real Estate IT ; Five Oaks Investment Corp. ; and Capitala Finance , respectively. The other two top yielders placed eight and tenth by upside: Fifth Street Finance  and AGNC Investment , respectively.
Firms outside the top ten by yield placed fourth through seventh, and ninth, by price upsides: Horizon Tech Finance (NASDAQ:HRZN) ; Whitestone (NYSEMKT:WSR) ; Independence Realty Trust (NYSEMKT:IRT) ; Bluerock Residential (NYSEMKT:BRG) ; and Harvest Capital Credit (NASDAQ:HCAP) , respectively.
Price upside, of course, is defined as the difference between the current price and analyst target 1-year median price for each stock.
Those ten MoPay stocks showing the highest upside price potential into 2018 were gleaned from 30 selected by yield. Three to nine analysts have historically provided the most accurate mean target price estimates.
List Three: Monthly Pay Dividend Closed-End Investment Companies, Exchange-Traded Funds and Notes by Yield
Eighty top monthly dividend-paying (MoPay) closed-end funds, exchange-traded funds and notes listed below were culled from nearly 1200 candidates. Yields greater than 7.5% calculated as of December 30 determined the top ten.
Ten monthly paying dividend closed-end investment companies, funds and notes showing the biggest yields for January by YCharts and Yahoo Finance data featured five exchange traded notes (ETNs), four closed-end investment companies (CEICs) and one exchange-traded fund.
Exchange-traded notes captured the first two positions: UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN (NYSEARCA:MORL)  and UBS ETRACS Monthly Pay 2xLeveraged Closed - End Fund ETN (NYSEARCA:CEFL) . Three additional ETNs placed fourth, eighth and ninth: ETRACS Monthly Pay 2xLeveraged MSCI US REIT Index ETN (NYSEARCA:LRET) ; UBS ETRACS Monthly Pay 2xLeveraged Wells Fargo MLP Ex - Energy ETN (NYSEARCA:LMLP) ; and UBS ETRACS Monthly Pay 2xLeveraged Diversified High Income ETN (NYSEARCA:DVHL) , respectively.
The four CECIs placed third, and fifth through seventh: Stone Harbor Emerging Markets Income Fund (NYSE:EDF) ; PIMCO Corporate & Income Opportunity Fund (NYSE:PTY) ; PIMCO Dynamic Income Fund (NYSE:PDI) ; and PCM Fund (NYSE:PCM) , respectively.
Finally, the lone ETF placed tenth: First Trust Australia AlphaDex ETF (NYSEARCA:FAUS) . This rounded out the top ten closed-end investment companies, exchange-traded funds and notes list for January 2017.
Background and Actionable Conclusions
Following the June 2012 reader suggestions to include funds, trusts and partnerships, a list of MoPay equities to buy and hold in September 2012 resulted, supplemented with a high yield collection from here. That list was supplemented by an upside potential article in October and a upside vs. buy-and-hold in November. Another list factored December 2012 reader comments.
Again this month, the 2017 articles continue to compare and contrast MoPay equity upside potential to high-yield (and higher-risk) buy-and-hold closed-end investment companies as well as exchange-traded funds and notes constituents.
MoPay Equity Dividend vs. Price Compared to Dow
Ten top MoPay dividend dog stocks by yield were graphed below as of December 30, 2016, and compared with those of the Dow. Annual dividend history from $1000 invested in each of the ten highest-yielding stocks and their aggregate single-share price created the data points shown in green for price and blue for dividends.
Actionable Conclusions: (1) MoPay Equities Mixed Down as (2) Dow Dogs Charged Into January
Ten top MoPay dogs dropped in dividend and price after December to make the mix-down. Aggregate dividend from $10k invested as $1k in each of the top ten stocks fell 3.35%, while the total single-share price of those ten declined 3.14% for the period.
Meanwhile, Dow dogs charged to a higher level of overbought. The Dow 10 showed less annual dividend from $10k invested as $1K in each of the top ten, down 1.8% after December, while the aggregate single-share price increased 10.8%.
As a result, the Dow dogs' overbought condition (where the aggregate single-share price of the ten exceeded the projected annual dividend from $10k invested as $1k in each) reached a new record level.
The Overbought Dow
As of January 8, 2016, the overbought gap was $224 or 56%. In February it grew to $246 or 59%. March put the gap up to $293 or 73%. April made triple digits rising to $400 or 104%. May brought the gap down to $350 or 91%, and June put it at $342 or 90%.
July put the gap at $401 or 109%. August found the overbought condition measured at $423 or 116%. September grew that gap again to $465 or 126%. In October, the gap settled at $389 or 105%. November dropped to $338 or 89% gap between high price and low dividends. December put the numbers back in triple digits at $408 or $110%. January widened the mark to $499 or 137%.
The Dow dogs remain overbought and overpriced. Meaning, these are low-risk and low-opportunity Dow dogs. The Dow top ten average price per dollar of annual dividend was $27.91 as of December 30.
In marked contrast to the Dow, MoPay stock dividend dog top ten average price per dollar of annual dividend was a low $8.05 as of December 30. That's nearly 3.5 times less than the price of a dollar of Dow annual dividends.
To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metric, analyst mean price target estimates provided another tool to dig out bargains.
Actionable Conclusion (3): Wall St. Wizards Envisioned A 18.65% 1-year Average Net Gain For Top 30 December MoPay Stocks
Top dogs on the MoPay stock list were graphed above to compare relative strengths by dividend and price as of December 30, 2016, with those projected by analyst mean price target estimates to the same date in 2017.
Historical prices and actual dividends paid from $10,000 invested as $1K in each of the ten highest-yielding stocks and the aggregate single-share prices of those ten stocks created the data points applied to 2017. Projections based on estimated increases in dividend amounts from $1000 invested in the ten highest-yielding stocks and aggregate 1-year analyst mean target prices as reported by Yahoo Finance created the 2018 data points shown in blue for dividend and green for price. Note: 1-year target prices from one analyst were not applied (n/a).
Analysts projected a 5.6% lower dividend from $10K invested as $1k in the top ten December MoPay dogs, while the aggregate single-share price was projected to increase by 4.8% 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 above chart. Three to nine analysts were considered optimal for a valid projection estimate. Estimates provided by one analyst were not applied (n/a).
A beta (risk) ranking for each stock was provided in the far right column. A beta of 1 meant the stock 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 (6): Analysts Cast Top Ten MoPay Dog Stocks to Net 17% to 57.4% Gains To January 2018
Five of the ten top dividend MoPay dogs (shaded in the chart above) were verified as being among the top ten gainers for the coming year based on analyst 1-year target prices. Thus, the dog strategy for this MoPay group as graded by analyst estimates for January proved 50% accurate.
Ten probable profit-generating trades were illustrated by YCharts analytics for 2018:
Wheeler Real Estate IT netted $574.12, based on estimates from two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 21% more than the market as a whole.
Five Oaks Investment Corp. netted $509.18, based on estimates from two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 27% more than the market as a whole.
Capitala Finance netted $283.94, based on mean target price estimates from ten analysts plus dividends less broker fees. A Beta number was not available for CPTA.
Horizon Tech Finance netted $238.31, based on a mean target price estimates from five analysts plus dividends less broker fees. A Beta number was not available for HRZN.
Fifth Street Finance netted $212.77, based on dividends plus median target price estimate from five analysts less broker fees. A Beta number was not available for FSC.
AGNC Investment netted $174.70, based on median target estimates from twelve analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 84% less than the market as a whole.
Fifth Street Senior Floating (NASDAQ:FSFR) netted $174.30, based entirely on dividend, and on a median target price estimate from three analysts less broker fees. A Beta number was not available for FSFR.
Bluerock Residential netted $172.42, based on a mean target price estimate from seven analysts, combined with projected annual dividend less broker fees. A Beta number was not available for BRG.
Whitestone netted $171.93, 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 6% more than the market as a whole.
Independence Realty Trust netted $170.58, based on dividend plus mean target price estimates from four analysts less broker fees. A Beta number was not available for IRT.
Average net gain in dividend and price was 26.8% on $1k invested in each of these ten MoPay dog stocks. This gain estimate was subject to average volatility 7% less than the market as a whole.
Top Ten Dividend and Price Results For MoPay Closed-End Investments, Exchange-Traded Funds and Notes by Yield vs. Equities
Relative strengths for the top ten MoPay "Fund" dogs by yield were graphed as of December 30, 2016, and compared to those of the ten top equities. Twelve periods of projected annual dividend history from $10,000 invested as $1k in each of the ten highest-yielding equities and the total single-share prices of those ten equities created the data points for each period (shown in blue for dividend and green for price).
Actionable Conclusion (7): MoPay Top Ten DiviDog Closed-End Investments, Exchange-Traded Funds and Notes Charged Bullishly Into January
The chart above shows MoPay closed-end investments, exchange-traded funds and notes plummeted in dividend as price arose to reverse a bearish retreat rampant after October. This impromptu post-election Santa rally depressed projected dividend from $10k invested as $1k in each of the top ten funds and trusts down 10% lower, while the aggregate single-share price of the top ten over the same period soared 32%.
As of December 30, the top closed-end investments, exchange-traded funds and notes dogs showed $279 or 22.4% more dividend at a $85 or 46% higher aggregate single-share price than the MoPay equity top ten.
In further contrast to the Dow, ten top MoPay closed-end investments, exchange-traded funds and notes' average price per dollar of annual dividend was the lowest of the three at $6.63 as of December 30. That's more than 4.2 times less than a Dow dollar of dividend.
Actionable Conclusion (8): Buy and Hold Monthly Dividend-Paying Closed-End Investments, Exchange-Traded Funds and Notes, If You Dare (and if the deviation from NAV is OK)
Stock analysts don't hazard guesses as to when or how much closed-end investments, exchange-traded funds and notes prices will rise or fall. They are paid to gauge individual stocks and a few funds and partnerships. Hence, this monthly pay dog diligence only revealed a list of funds and notes to buy and hold based on yield, if you choose to go there. As a consolation, the lists of 80 such investments above show deviations up or down from net asset value for these MoPay closed-end investments, exchange-traded funds and notes.
How Does The Lowest Loser MoPay Stock Compare to The Highest-Yield Fund In Price History For the Most Recent Quarter?
Price performance of MORL versus Gladstone Capital (NASDAQ:GLAD), the two extreme ends of Monthly Pay yield results, show a positive path for both the red-lined "low dog" GLAD and a lesser positive track for the highest yield fund, MORL, in blue in the most recent 3-month period (October 4 to January 4).
This comparison casts doubt on the veracity of analyst forecasts relative to recent real price moves.
Dog Metrics Revealed Best Returns From Five Lowest-Priced, Highest-Yield Monthly Pay Stocks
Ten monthly pay stock equities were culled by yield. These results, verified by YCharts and Yahoo Finance, produced the following rankings.
Actionable Conclusions: (9) Analysts Estimate 5 Lowest-Priced of the Top Ten Highest-Yield MoPay Dividend Stocks Will Produce 28.78% Vs. (10) 22.57% Net Gains from All Ten by January 2018
$5000 invested as $1k in each of the five lowest-priced stocks of the top ten MoPay dividend dog kennel by yield were predicted by analyst 1-year targets to deliver 27.22% more net gain than $5,000 invested as $.5k in all ten. The very lowest-priced MoPay dividend dog, Wheeler Real Estate Investment Trust, was predicted to deliver the best net gain of 57.41%.
The five lowest-priced MoPay dividend dogs estimated as of December 30 were: Wheeler Real Estate Investment Trust, Five Oaks Investment, Fifth Street Finance, San Juan Basin Royalty Trust and Prospect Capital, with prices ranging from $1.70 to $8.35.
Five higher-priced MoPay dividend dogs estimated December 30 were: Orchid Island Capital Inc., Mesa Royalty Trust, Capitala Finance, AGNC Investment and ARMOUR Residential REIT, whose prices ranged from $10.83 to $21.69.
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. The same technique, you now see, can also be used to find some rewarding dogs in the MoPay Stock kennel.
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.
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 MoPay stocks from this article in January 2016. 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 early January 2016 was two price losses from firms no longer in business against eight gains over a 1-year period. The 1-year buy and hold strategy proved 80% positive for this MoPay collection of ten. For reference, three low-price MoPay Dogs were gainers. All five higher-priced dogs gained.
The gains/declines as reported do not factor in any tax problems resulting from dividend, profit, or return of capital distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.
The stocks listed above were suggested only as decent starting points for your MoPay dividend stock purchase or sale research process. These were not recommendations.
Three of these MoPay dividend pups qualify as valuable catches! They are listed with the now 52 Dogs of the Week found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.
Root for the Underdog.
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; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog Photo: the-fairgrounds. com.; dogperday.com.
Disclosure: I am/we are long ARR, FSC, HRZN, 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.