3 Monthly Dividend Stocks Beating The Market In 2019, 7% To 9% Yields, Insiders Buying, No K-1s

Last week we covered 3 high yield stocks which had been left behind by the market in 2019. This week we’re checking out 3 high yielders which have outperformed the market in 2019.

All 3 of them are vehicles from Gladstone Corp: Gladstone Investment Corp., (GAIN), and Gladstone Capital Corp., (GLAD), are business development companies, while Gladstone Commercial Corp., (GOOD), is a REIT.

GAIN focuses on acquiring mature, lower middle market companies with $20 to $100 million in revenue, whereas GLAD was one of the earliest BDCs and focuses on investing in loans to lower middle market businesses.

GOOD invests in and owns net leased industrial, commercial and retail real property and selectively makes long-term industrial and commercial mortgage loans.

All 3 have benefited from an increasingly dovish Fed, with very good price performance so far in 2019, with GAIN leading the pack, at 25.75%, followed by GLAD, at 23.29%, and GOOD, at 15.46%, vs. 12.05% for the S&P 500.

GAIN and GOOD have also outperformed over the past half-year and 1-year periods, while GLAD has underperformed:

Dividends/ Distributions:

All 3 companies distribute monthly dividends, and go ex-dividend ~ the middle of the month, with pay dates near the end of the month.

The dividend payout ratios are based upon net investment income – NII – for GAIN and GLAD, and Funds From Operations – FFO – for GOOD, since it’s a REIT.

GLAD currently has the highest yield, at 9.32%, followed by GOOD, at 7.16%, and GAIN, at 6.97%.

GAIN has a much lower payout ratio than the other 2, at ~29%, and the best 5-year dividend growth rate, at 6.55%.

Taxes:

GAIN’s 2018 payouts were classified as 75.42% ordinary dividends, with the balance being capital gain dividends and qualified dividend income.

GLAD’s 2018 payouts were classified as 97.8% ordinary dividends, with the balance being classified as qualified dividends.

GOOD’s 2018 payouts were classified as 75.52% Return of Capital, with the balance characterized as an ordinary dividend.

Earnings:

GAIN had 6.6% growth in total investment income, but its net investment income dove -77.82%, due to higher expenses, including ~$13M in higher incentive fees, $2.5M in higher interest expenses, and ~$1.4M in added G&A expenses. Its NAV/share rose by 20.83% in calendar year 2018, to $12.53.

GAIN’s most recent fiscal year ended on 3/30/18, so we assembled calendar years 2018 vs. 2017 figures.

Note: All of the figures in the following 3 tables are in $ millions, excepting NAV/Share.)

GLAD, whose fiscal year ended on 9/30/19, had better growth figures for total and net investment income, with 16.19% and 7.75% respectively. For the calendar year of 2018, its NAV/share declined by -5.9%, to $7.98, vs. $8.48 at 12/31/17:

GOOD, the REIT in this group, reports on a calendar year basis, had revenue growth of 12.66%, and big net income growth of 119.78%. FFO also had a healthy gain of 12.21%:

Insiders:

All 3 companies have a fairly recent history of insider buying. These 3 insider buying tables are sourced from Finviz.

GAIN’s management took advantage of the general market pullback in Q4 ’18, and bought 8500 shares:

GLAD’s management made similar moves in Q4 ’18, and bought over 32,000 shares:

Meanwhile, GOOD’s management has kept the buying spree going into March ’19, but at a more modest pace than the other 2 companies’ 2018 purchases. GOOD’s president Robert Cutlip has amassed over 48,000 shares. Nice to see management with skin in the game.

Valuations:

BDC’s GAIN and GLAD are both selling at valuations slightly higher than Book Value, at 1.08X and 1.13X respectively. GAIN shows a much lower Price/Net Investment Income – NII – of 4.66, while GLAD comes in at 8.55, nearly twice as high. Their trailing P/Es vary widely, with GLAD showing 29.10, vs. 3.79 for GAIN.

GOOD shows a trailing Price/FFO of 13.25, with a higher Price/Book of 2.5X, and a similar Price/Sales of 6.04X.

Analysts’ Price Targets:

GAIN also has the biggest upside spread vs. analysts’ average price targets, at 5.21%, vs. 3.63% for GOOD and -8.1% for GLAD.

Financials:

GAIN wins the race over GLAD in the Financials category also, with a higher ROA, ROE, and Operating Margin, and slightly lower debt leverage.

GOOD’s ROA of 2.39%, ROE of 3.57%, and 33.50% Operating Margin compares well vs. broad diversified REIT averages of 1.18%, 2.82%, and 23.75% respectively. Its Debt/Equity of 1.67 is also lower than industry averages of 2.77.

Options:

All 3 of these vehicles have options available, with GOOD’s cash secured put options being the most interesting.

We added this September trade to our free Cash Secured Puts Table, where you can see more details for it, and over 35 other put-selling trades, all of which are updated throughout each trading day.

GOOD’s September $20.00 put pays a bid of $.65, which is $.10 below its total monthly dividends during this 6-month period. It has a breakeven of $19.35.

If you’re new to options selling, we have an Options Investing Glossary which defines the terms you’ll encounter in this type of trading.

Summary:

We rate GAIN a Buy, based upon its lower valuations, better payout ratio, and bigger upside variance to the average price target. There are also preferred shares and exchange-traded notes for GLAD and GOOD.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in GAIN over the next 72 hours. 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.

Additional disclosure: CLARIFICATION: Our legacy website, www.DoubleDividendStocks.com, has focused on options-selling for high dividend stocks, for the past 10 years.

Reem Nori