The Case Of Monthly Pay Dividend Dog Incredible Shrinking Dividends

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Includes: AGNC, ARR, AWP, BRG, CEFL, CLDT, CPTA, DMO, EDF, GECC, GLAD, GML, GOOD, IRT, MORL, NCV, NCZ, OCSI, ORC, PCI, PCN, PDI, PFLT, PSEC, STB, WMB, WSR
by: Fredrik Arnold

Summary

58 monthly paying dividend (MoPay) Small, Mid and Large cap (SML) equity yields ranged 0.68%-13.9%. 69 SML CEIC, Fund & Note yields were 6.38%-13.57% February 10.

Top 10 US Equities continued to charge bullishly as Canadians retreated, averaging 10.25% & 9.43% yields, respectively. Ten MoPay Funds mixed down averaging 13.58%. Ten Dow Dogs retreated, averaging 3.7%.

Dog investors pick stocks whose yields are up since their stock-price dropped. A bullish market kills yields. The lofty Dow Index now has growth stocks, disguised as dividend dogs.

Analyst-augured top-yield MoPay equities were: BRG; GNL; GLAD; GECC; FSFR; ARR; PSEC; CPTA; AGNC; ORC leading. Top Funds were: AWP; PCN; NCZ; NCV; PCI; DMO; EDF; PDI; CEFL; MORL leading.

Ten top yield SML equities projected 61.07% LESS gain from $5k invested in the lowest priced five than from $5K in all ten. These small dogs still won't fly.

SML MoPay Dogs As Valentines

Yield (dividend / price) results from here verified by Yahoo Finance for 58 monthly dividend paying Small, Mid, & Large cap (MoPaySML) equities as of market closing prices 2/10/17 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 total assets under management.

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." More precisely, these are, in fact, best called, "underdogs."

Dog investors pick stocks whose yields are up since their stock-price dropped. A bullish market kills yields. The lofty DOW Index now has growth stocks, disguised as dividend dogs.

SML Valentines Day MoPays

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

58 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.

Again, real estate and financial firms dominated the top 10 equity list and loaded the master list of fifty-eight with twenty-six REITs, and twelve financial service firms, along with ten energy issues, two consumer cyclical, three industrials, one consumer defensive, one utility, one healthcare, one communication services, and one basic materials firm represented. Only the technology sector was missing from the monthly dividend equity SML payor list.

The equity list is not split between USA exchanges and Canadian stock exchanges. However a larger SML list from Canadian exchanges and a Canadian top ten are here for comparison purposes.

Top Ten MoPay Equities

Ten top monthly pay SML Cap dividend equities this week by yield included five real estate firms, and five financial services, to cover two of the eleven Morningstar business sectors.

After January 27, the top ten MoPay equity dogs charged onward as dividend fell while price took off higher, but the Canadian top ten MoPaySML dogs retreated as their dividend soared and price dropped.

Actionable Conclusion: (1) Top 10 Equities Charged

Top Ten MoPay equity dividend fell 4.3%, while aggregate single share price of the ten soared 7.7%.

A diversified REIT led the top ten list by yield again, Orchid Island Capital (NYSE:ORC) [1]. Four other real estate entities followed in second, fifth, ninth, and tenth places, American Capital Agency (NASDAQ:AGNC) [2], ARMOUR Residential REIT (NYSE:ARR) [5], Global Net Lease (NYSEARCA:GML) [9], and Bluerock Residential (NYSEMKT:BRG) [10].

Five financial services representatives put themselves in second, third, fourth, and sixth to eighth places: Prospect Capital Corporation (NASDAQ:PSEC) [4]; Capitala Finance (NASDAQ:CPTA) [3]; Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) [6]; Great Elm Capital (NASDAQ:GECC) [7]; Gladstone Capital (NASDAQ:GLAD) [8] to complete the February 10 MoPay SML top yield ten dog list.

Canada Top Ten MoPay Equities

This week's ten top Canadian exchange monthly pay SML Cap dividend stocks by yield included two financial service firms, seven real estate firms, and one consumer cyclical sector representative, to cover three of eleven Morningstar business sectors.

Actionable Conclusion: (2) Canadian 10 SML Retreated

Canadian equities dividend rose and price fell to make the retreat. Dividend rose 7.6%, while aggregate single share price of the ten dropped 2.4%.

Two financial service firms placed first and second for Canada, Financial 15 Split (FTN.TO) [1] and Dividend 15 Split Corp (DFN.TO) [2].

The first of six REITs led that RE procession from the third spot, Cominar REIT (CUF-UN.TO) [3]. The rest of the REITs placed fourth, and sixth through tenth. Slate Office REIT (SOT-UN.TO)[4]; Artis REIT (AX-UN.TO) [6], Dream Global REIT (DRG-UN.TO) [7], OneREIT (ONR.UN.TO) [8]; Summit Industrial Income Dream (SMU.UN.TO) [9]; Industrial REIT (DIR-UN.TO) [10].

The single consumer cyclical firm placed fifth, Corus Entertainment (CJR-B.TO) [7], to complete the Canadian exchanges February 10th MoPay SML top yield ten dog list.

MoPay SML Funds by Yield

55 small Closed Ended Investment Companies [CEICs], plus two mid cap CEICs, two small ETNs and two small ETFs were the 61 culled from nearly 800 monthly dividend paying (MoPay) funds, trusts and notes by yields calculated as of January 10 to determine the top ten.

Actionable Conclusion (3) SML Funds Mixed Down

MoPay Fund top ten dogs were down in both dividends and price after January 10. Dividend from $10K invested as $1k in each Fund dog fell 7.4%, while aggregate single share price of those ten equities dropped 25%.

Ten monthly SML Funds showing the biggest yields (revealed by YCharts.com and verified using Yahoo Finance data) this week (again) consisted of eight Closed Ended Investment Companies, and two ETNs.

Those ETNs took the top two spots, UBS E-TRACS Mthly Pay 2x Mortg REIT ETN (NYSEARCA:MORL) [1], and UBS ETRACS Mthly Py 2xLvg Closed-End ETN (NYSEARCA:CEFL) [2]. Leader of the eight CEICs was third, PIMCO Dynamic Income (NYSE:PDI) [3].

Fourth through tenth belonged to the remaining seven CEICs: Stone Harbor Emerging Mkts Income (NYSE:EDF) [4]; Western Asset Mortgage Defined Opp (NYSE:DMO) [5]; PIMCO Dynamic Credit and Mortgage (NYSE:PCI) [6]; AllianzGI Convertible & Income (NYSE:NCV) [7]; AllianzGI Convertible & Inc II (NYSE:NCZ) [8]; PIMCO Corporate & Income Strategy (NYSE:PCN) [9]; Alpine Global Premier Property (NYSE:AWP) [10], to round out this mid-February all Funds top ten list.

Actionable Conclusion(4) Dow Dogs Retreated

With a surge upward in dividend and a tumble in price, Dow dogs concluded the expansion their overbought record.

Actionable Conclusion (5): The Dow Overbought Gap Narrowed

Looking back to April, 2016 the Dow price over dividend gap was $400 or 104%. May shrank the gap to $350 or 91%. June put the gap back to $386 or 104%. The gap rose to $414 or 114% in July. August gapped to $446 or 125%. September pushed it to $483 or 132%. October dropped it down to $369 or 97%. November kept the gap down at $363, or 99%. However, December made price over dividend $490 or 134%, surpassing the previous September chasm by two points. January, 2017 saw the gap at $497 or 135%, up another point. The February 10 reduction went to $450 or 122%, down 13 points.

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 February 10 was $27.73.

Actionable Conclusion (6): MoPay Price Advantage Goes To Closed End Investment Funds, and Exchange Traded Funds & Notes

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 February 10 SML MoPay equity top ten average price per dollar of annual US exchange dividend was $9.61. Canada's dollar of dividend price was $10.40.

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 $7.12. That $2.49 to $3.28 difference below dividend cost of the MoPay equities is likely due to the trust and fund ability to return capital to investors in addition to dividends.

Actionable Conclusion (7) One Lowly Industrial Dog and One Energy Hound on MoPay Upside Lists Compete With 4 Financials & 4 REITs For Gains

Actionable Conclusion (8) Wall St. Analysts Assert A 9.22% Average 1 yr. Upside for Top 10 MoPaySML Dogs Come February 10, 2018

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 2018 out of 30 selected by yield in 2017.

Actionable Conclusion (9) Yields Averaged 13.58% Annually For MoPay SML Funds Top 10 List February 10

Top ten closed end funds, ETFs, & ETNs paying monthly dividends showed yields ranging from 10.71% to 19.91% promising investors strong returns, not counting price appreciation.

Actionable Conclusions: Wall St. Brokers Forecast (10) A 1.36% Average 1 yr. Upside With (11) A 8.64% Average Net Gain for Top 30 MoPay SML Stocks As Of February 10, 2018

Top 30 dogs on the MoPay stock list graphed above show relative strengths by dividend and price as of February 10, 2017 and those projected by analyst mean target price estimates to the same date in 2018.

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 2018.

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 2017. 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 2018 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 0.8% 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 1.3% 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 seldom 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. Since no Canadian equities provided analyst upside estimates, a list of all US Exchange stocks resulted.

Actionable Conclusion (12): Wall St. Brokers Estimate 15.8% Average Net Gains For Top 10 MoPaySML MoPay Dogs As Of February 10, 2017

This period, four 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 40% accurate.

A real estate equity this time led the ten probable profit generating trades revealed by Thomson/First Call in Yahoo Finance for February 10, 2017:

Gladstone Commercial (NASDAQ:GOOD) was projected to net $229.38 based on dividend plus the median target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 16% less than the market as a whole.

Bluerock Residential was projected to net $218.59 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 (NYSEMKT:WSR) was projected to net $292.81 based on the median target estimate from eight analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 6% less than the market as a whole.

Student Transportation (NASDAQ:STB) was projected to net $190.18 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 23% less than the market as a whole.

Williams Companies (NYSE:WMB) was projected to net $163.19 based on dividends plus the median of annual price estimates from eighteen analysts less broker fees. The Beta number showed this estimate subject to volatility 36% more than the market as a whole.

Capitala Finance was projected to net $153.64 based on dividend plus the median target price estimate from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 3% more than the market as a whole.

Fifth Street Senior (FSFR) was projected to net $139.42 based on the median target price estimate from three analyst plus dividends less broker fees. The Beta number showed this estimate subject to volatility 55% less than the market as a whole.

Orchid Island Capital was projected to net $115.70 based on no median target price estimate from analysts, just the dividends less broker fees. The Beta number showed this estimate subject to volatility 35% less than the market as a whole.

Independence Realty Trust (NYSEMKT:IRT) was projected to net $112.40 based on dividends plus the median of annual price estimates from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 14% more than the market as a whole.

PennantPark Floating Rate Capital (NASDAQ:PFLT) was projected to net $90.79 based on the median target price estimate from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 42% less than the market as a whole.

The average net gain in dividend and price was 15.78% on $10k invested as $1k in each of these ten MoPay dogs. The averaged Beta number showed this estimate subject to volatility 17% less than the market as a whole.

Actionable Conclusion (13): (Bear Alert) Analysts Projected Three MoPay Dogs To Show Losses By 2018

Three probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2018 were:

Prospect Capital (NASDAQ:PSEC) was projected to lose $30.99 based on dividend and a median target price estimates from eight analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 56% less than the market as a whole.

Chatham Lodging Trust (NYSE:CLDT) was projected to lose $77.10 based on dividend and a median target price estimates from six analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.

Gladstone Capital was projected to lose $89.47 based on dividend and a median target price estimates from three analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 17% more than the market as a whole.

The average net loss in price and fees including dividends collected was 6.59% on $3k invested as $1k in each of these three dogs. This loss estimate was subject to average volatility 14% less than the market as a whole.

Analyst Estimated Lowest Downside MoPay Equity Surpassed The Highest Upside Equity In Price Gains Over The Past 3 Months (Both Biggest Gainer and Loser Were By Gladstone)

Three month price performance of Gladstone Commercial versus Gladstone Capital , the two extreme ends of Monthly Pay upside results this week, show a more positive 16.5% positive path for the red-lined "low dog" GLAD and a nearly two-thirds as positive 11.98% uptrend for the analyst-favored GOOD in blue November 14, 2016 to February 13, 2017

One month graphic history, however, supports analyst leanings as GLAD drops 1.4% below the trajectory of GOOD. Maybe the Wizards were "wright."

Dog Metrics Found 61.07% LESS Gain In Lowest Price Highest Yield MoPay Dividend Dogs

Ten top monthly pay SML Cap dividend stocks this week by yield included five real estate firms, and five financial service firms, covering only two of the eleven Morningstar business sectors. As of market close, February 10, MoPay leaders by yield were charted above and graphed below by price gains.

Actionable Conclusion (14): Analysts Asserted 5 Lowest Priced of Top Ten High Yield MoPay SMLs Would Deliver 3.11% VS. (15) 7.98% Net Gains from All Ten

$5,000 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 61.07% LESS net gain than $0.5k invested in each of all ten. The seventh lowest priced MoPaySML dog, Bluerock Residential , was projected to deliver the best net gain of 21.86%.

Lowest priced five MoPaySML dogs as of February 10 were: Global Net Lease; Fifth Street Senior Capital; Prospect Capital; Gladstone Capital; Great Elm Capital, whose prices ranged from $8.08 to $11.25.

The higher priced five MoPaySML dogs for February 10 were: Orchid Island Capital; Bluerock Residential; Capitala Finance; AGNC Investment; AGNC Investment; Armour Residential REIT, whose prices ranged from $12.38 to $21.77.

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 low price 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.

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 February 2, 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 The Top Ten Monthly Pay Stocks by yield between January 25, 2016 and February 10, 2017, was three price losses, with seven price gains. Four of the gainers were high price dogs for the year. This group of MoPays showed a 70% positive price result for the year. However only nine of these ten MoPays continued to pay any dividends, and of those nine, four paid lower dividend and Five were unchanged. These 2016 MoPays failed to live up to analyst expectations.

Stocks listed above were suggested only as decent starting points for a MoPay dog dividend stock investment research process into February, 2017. 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 and this instablog to aid your safe investing. --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.

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:petparlorpro.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 covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.