'Safer' MoPay SML Dogs Deliver High Yields For Spring

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Includes: AGNC, ALARF, ARESF, BNEFF, CGIFF, CPTA, GAIN, GLAD, ORC, PSEC, PZRIF
by: Fredrik Arnold

Summary

Of 95 Top monthly-paying (MoPay) dividend equities ranked by 1Yr. Total-Returns, 40 reported free cash flow yield greater than dividend yield. ORC, by 1yr target gains, again topped those.

Top 10 "safer" March 17 MoPay yields from NVU.UN.TO; SUNS; ARESF; GAIN; ONR.UN.TO; GLAD; PSEC; CPTA; AGNC; ORC ranged 7.58% to 16.73%. Cash flow yields ranged 8.67% to 30.41%.

"Safer" MoPay Equity dogs also reported payout ratios, total annual returns, and dividend growth, as of 3/10/17 to verify their financial prowess. 5%+ 1-year returns pre-selected the 40.

Matched against top ten Dow Dogs, the US exchange-traded "safer" MoPay Equities  top gain ten by yield produced 320% more dividend at 11.7% of the Dow Dog price. Against top ten funds the results were even.

Broker targets also revealed that ten safe MoPay Equities charted 43.07% LESS gains from $5k invested in the lowest priced five than from $5K invested in all ten.

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 specifically, these are, in fact, better termed, "underdogs".

MoPay Firms Represented Eight of Eleven Sectors With Higher Returns & Cash Margins For Dividends

Real estate, financial services, energy, consumer cyclical, basic materials, healthcare, utilities, utilities, and industrials were represented by the 40 companies whose dividends were backed by sufficient cash cushions as of March 17.

The distribution of firms in those sectors showed: real estate (16); financial services (8); energy (5); consumer cyclical (7); basic materials (1); healthcare (1); utilities (1); industrials (1); consumer defensive (0); communication services (0); technology (0).

The top ten MoPay firms by yield, however represented ust the first two sectors on the list above.

40 MoPay Firms With Total Annual Returns over 5% Were Backed By Cash Flow Margins Greater Than Dividends

Periodic Safety Check

You see below the list that passed the dividend "stress" test. These 40 MoPay equity dogs report sufficient annual cash flow yield to cover their anticipated annual dividend yield. The margin of excess is shown in the bold face "Safety Margin" column.

Financial guarantees however are easily over-ruled by a cranky board of directors or company policy cancelling or varying the payout of dividends to shareholders.

For example, from the US list, Prospect Capital (PSEC) reduced its dividend from $.111 To $.083 as of January 2015. Also, American Capital Agency (AGNC) announced July 27 a reduction of its $.20 monthly shareholder payout to $.18 as of September. A more recent example is dividend reductions by Capitala Finance (CPTA) from $0.207 per month in December 2015 to $0.157 in January 2016 and a further reduction to $0.13 per month in October 2016.

This article asserts that adequate cash flow is a strong justification for a company to sustain annual dividend increases.

Three additional columns of financial data listed after the Safety Margin figures reveal payout ratios (lower is better), total annual returns, and dividend growth levels for each stock. This data is provided to reach beyond yield to select reliable payout stocks.

Total annual returns were used to select the 95 baseline MoPay dogs for this article. Those 1 year increasing returns could give this collection a boost on gains for this coming year. Positive results in all five columns after the dividend ratio is a positive financial signal.

Dividend vs. Price Compared to The "Safe" Dow Dogs and Funds

Ten top "safe" MoPay dividend dog US and Canadian Exchange stocks by yield were graphed below as of 3/17/17 and compared to those of the "Safe" Dow and Funds. 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) Top "Safer" MoPay Dog Dividends Were 89% & 81% Of Price While (2) Top 10 "Safe" Dow Dog Dividend Was 23% Of Their Price And (3) Top Ten Funds Dividend Was 89%.

Ten top "Safe" MoPay US & Canadian Exchange dog aggregate single share price was calculated as 11% & 19% of the dividend amount derived from $10k invested as $1k in each of the top ten stocks.

Meanwhile, "Safe" Dow dogs aggregate single share price for top ten yielding dogs was 77% more than the dividend derived from $10k invested as $1k in each of the top ten stocks.

Funds also showed a strong price advantage with share price calculated as 11% of the dividend amount derived from $10k invested as $1k in each of the top ten. (See 65 Funds listed in index at end of article.)

As a result, the Dow dog overbought conditions (where aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k in each) is a huge pricing disadvantage for new investors.

Overbought Dow vs. The MoPay Equities and Funds

low risk and low opportunity Dow dogs. The "Safer" Dow top ten average price per dollar of annual dividend was $33.24 as of March 17.

In contrast to the Dow, "Safer" US MoPay dividend dogs top ten average price per dollar of annual dividend was $10.27 as of 3/17/17. That amount was 30% of the price paid for a dollar of Dow Dog annual dividend.

Compared to the Dow, "Safe" Canadian MoPay dividend dogs top ten average price per dollar of annual dividend was $15.00 as of 3/17/17. That amount was 45% of the price paid for a dollar of Dow Dog annual dividend.

However the best advantage over the Dow was shown by , MoPay dividend Fund dogs, whose top ten average price per dollar of annual dividend was $7.16 as of 3/17/17. That amount was 22% of the price paid for a dollar of Dow Dog annual dividend.

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 (4): Wall St. Brokers Boosted A 3.94% 1 yr. Average Upside and 10.29% Net Gain For Top 30 March 17 "Safe" MoPay Equities

Top dogs on the MoPay "Safe" equity list were graphed above to compare relative strengths by dividend and price as of March 17, 2017 with those projected by analyst mean price target estimates to the same date in 2018.

Historic 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 one year analyst mean target prices as reported by Yahoo Finance created the 2018 data points in blue for dividend and green for price. Note: one year target prices from one analyst were not applied (n/a).

Analysts projected a 4% lower dividend from $10K invested as $1k in the top ten March 17 MoPay dogs while aggregate single share price was projected to increase by 7% 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 usually 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'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 (5): Wall St. Wizards Expected Top Ten MoPay "Safer" Dogs to Net 11% to 48.3% Gains To March 17, 2018

Three of the ten top dividend Utilities "safe" 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 equities group as graded by analyst estimates for March 17 proved 30% accurate.

Ten probable profit generating trades were illustrated by YCharts analytics for 2018:

Bonterra Energy (BNE.TO) [OTC:BNEFF] netted $483.33, based on targets from fifteen brokers, plus dividends minus broker fees. The Beta number showed this estimate subject to volatility 115% more than the market as a whole.

Orchid Island Capital (ORC) netted $267.85 based on a mean target price estimate from one analyst plus dividends less broker fees. The Beta number showed this estimate subject to volatility 47% less than the market as a whole.

OneREIT (ONR.UN.TO) [ONRTF] netted $212.49 based on dividends plus median target price estimate from three analysts less broker fees. A Beta number was not available for ONRTF.

Keg Royalties Income (KEG.UN.TO) [KRIUF] netted $182.07 based on dividend, plus a median target price estimate from one analyst, less broker fees. The Beta number showed this estimate subject to volatility 38% less than the market as a whole.

Smart Real Estate (SRU.UN.TO) [CWYUF] netted $155.02 based on target estimates from nine analysts, plus dividends less broker fees. A Beta number was not available for CWYUF.

Chemtrade Logistics (CHE.UN.TO) [OTC:CGIFF] netted $150.86 based on eight analyst target estimates, plus projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 19% less than the market as a whole.

Plaza Retail (PLZ.UN.TO) [OTC:PZRIF] netted $149.07 based on target price estimates from six analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 65% less than the market as a whole.

Capitala Finance (CPTA) netted $132.40 based on estimates from eleven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility equal to the market as a whole.

Alaris Royalty (AD.TO) [OTC:ALARF] netted $124.13 based on estimated target prices from twelve brokers, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 22% less than the market as a whole.

Agellan Commercial REIT (ACR.UN.TO) [ACRVF] netted $110.53 based on targets by seven brokers plus dividends less broker fees. The Beta number showed this estimate subject to volatility 61% less than the market as a whole.

Average net gain in dividend and price was 19.68% on $1k invested in each of these ten Real Estate dog stocks. This gain estimate was subject to average volatility 17% less than the market as a whole.

Actionable Conclusion (5): (Bear Alert) Analysts Expected Two MoPay Dog To Average 5.6% Losses By March 17, 2018

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

Prospect Capital (PSEC) projected a loss of ($53.30) 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 52% less than the market as a whole.

Gladstone Capital (GLAD) projected a loss of $59.13 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 20% more than the market as a whole.

Average net loss in price despite dividends was 5.62% on $1k invested in each of these two Real Estate dog stocks. This loss estimate was subject to average volatility 16% less than the market as a whole.

Dog Metrics Revealed No Bargains In Small "Safer" Dividend MoPay Equities

Ten "Safer" top MoPay firms that showed the top yields March 17 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: (1) Analysts Asserted 5 Lowest Priced of Ten "Safer" Dividend High Yield Monthly Pay Dividend Dogs Will Deliver 5.28% VS. (2) 9.28% Net Gains from All Ten by March, 2018

$5000 invested as $1k in each of the five lowest priced stocks in the "safe" ten MoPay kennel by yield were determined by analyst 1 year targets to deliver 43.07% LESS net gain than $5,000 invested as $.5k in all ten. The sixth lowest priced safe dividend MoPay dog, Orchid Island Capital (ORC) showed the best net gain of 26.78% per analyst targets.

Lowest priced five "safe" MoPay dogs as of March 17 were: OneREIT; Gladstone Investment (GAIN); Gladstone Capital (GLAD); Prospect Capital; Artis REIT (OTCPK:ARESF), with prices ranging from $3.57 to $9.94.

Higher priced five Safe Dividend MoPay dogs as of March 17 were: Orchid Island Capital; Capitala Finance; Solar Senior Capital; AGNC Investment; Northview Apartment REIT (NVU.UN.TO), with prices ranging from $10.04 to $21.51.

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 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, because analysts are historically just 20% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of the change.

Funds Index

The net gain estimates mentioned 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

Stocks listed above were suggested only as possible starting points for your safest Real Estate dog dividend stock research process. These were not recommendations.

Three of these MoPay dividend pups qualified as valuable catches! They are helping make investing fun again! Find them among the 52 Dogs of the Week (DOTW)I but also check out the 31 DOTWII also found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.

It's about time to make investing fun again. For a free copy of the monthly top dogs, the quarterly winners, and the dog of the year and runners-up from the 52 Dogs of the Week (DOTW) I portfolio, plus a glimpse at the top dogs in DOTW II, send your e-mail address, ticker symbol for your favorite dividend stock, and name of your favorite team of any sport or activity me by clicking "send message" below my name under the headline above this article. Remember: E-mail, ticker, team!

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 www.ycharts. com; www.finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo from: lowcountrydog.wordpress.com

Disclosure: I am/we are long VZ, PFE, GE, CSCO.

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.