In the fall of 2011, this report series started applying dog dividend methodology to reveal possible buy opportunities in each of eight major market sectors as listed by Yahoo Finance: basic materials (BMats), consumer goods (ConGo), financials (Fins), healthcare (Heal), industrial goods (IndiGo), services (Svcs), technology (Tec), and utilities (Utes).
Briefly, Investor Glossary, an online investor primer, recently offered this description of dividend dog methodology:
...[I]nvented to find the 10 stocks of the 30-stock Dow Jones Industrial Average with the highest yield (dividend / price) and invest equally in each, [t]he Dow dividend theory also requires that you repeat this process once a year.
Recently, the author has supplemented Dow dividend dog theory picks from Yahoo sectors with one year mean target price estimates reported by Yahoo from broker analysts.
Below, the Arnold Financials Selections for March were disclosed.
Dog Metrics Sniffed Out Top Financials Stocks
Top ten financial sector dogs showing the biggest dividend yields by Yahoo Finance's screen as of March 15 represented six industries. Top financial sector stock American Capital Agency (NASDAQ:AGNC) was one of three residential REITs. Others in that industry were CYS Investments (NYSE:CYS), in seventh place, and Hatteras Financial (NYSE:HTS) in eighth. Invesco Mortgage Capital Inc. (NYSE:IVR), the only mortgage investment firm was second dog. Chimera Investment (NYSE:CIM), one of three diversified REITs in the top ten, was third. The other diversified REITs were Annaly Capital Management (NYSE:NLY) in sixth and Anworth Mortgage Asset Co. (NYSE:ANH) in tenth. Resource Capital Corp. (NYSE:RSO), the lone retail REIT, was fourth dog. The diversified management industry was represented by Prospect Capital (NASDAQ:PSEC) in fifth position. An asset management firm, BlackRock Kelso Capital Corporation (NASDAQ:BKCC), rounded out the top ten financials dogs by yield in ninth position.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten financials dogs by yield as of market close 3/15/2013 compared to those of the Dow. Historic projected annual dividend history from $1000 invested in each of the ten highest yielding stocks and the total single share prices of those ten stocks created the data points shown in green for price and blue for dividends.
Actionable Conclusion: Financials Dogs on Neutral Path while Dow is Bullish
March's financials collection of dividend payers showed a mixed signal since February. Aggregate dividend from $10k invested in each of the top ten stocks fell at a rate of 7.3% since February while total single share price dropped 6% in that period. The Dow went bullish as price popped up 9.2% as dividend sank 3.1%. The Dow shows an overbought condition by 24% as aggregated single share price exceeded dividend from $1k invested in each stock by $92.
Since sector dogs are not the blue chip high quality equivalents of the Dow list, an additional gauge of upside potential was added to the simple high yield metric used to sniff out initial bargains.
Wizards of Wall Street Weighed In
One year mean target price set by analysts multiplied by the number of shares in a $1k investment were used to compare nine stocks showing the highest upside price potential into 2014 out of 20 selected by yield. The number of analysts providing price estimates was noted after the name for each stock. Three to nine analysts was considered optimal for a valid mean target price estimate.
Actionable Conclusion Two: Analysts See 10.6% Net Gain from Top 20 Dogs Come 2014
Top twenty dogs in the financials sector were graphed below to show relative strengths by dividend and price as of March 15, 2013 and those projected by analyst mean price target estimates to the same date in 2014.
A hypothetical $1000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by projected annual per share dividend amounts to find the dividend return. Thereafter the analyst mean target price was used to gauge the stock upsides to 2014.
Historic prices and actual dividends paid from $1000 invested in the ten highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 created the data points for 2013. Projections based on estimated increases in dividend amounts from $1000 invested in the twenty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 2 created the 2014 data points green for price and blue for dividends.
Yahoo projected a 1.5% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by 4.5% in the coming year.
The number of analysts contributing to the mean target price estimate for each stock was noted in the last column on the charts. Three to nine analysts were considered optimal for a valid projection estimate. Estimates provided by one analyst were not applied.
Actionable Conclusion Three: Analysts Forecast 2014 Financials DiviDog Stock Net Gains of 8.8% to 17.7%
Six probable profit generating trades revealed by Yahoo Finance for 2014 were:
CYS Investments, Inc. (CYS) netting $177.36, based on estimates from thirteen analysts;
Invesco Mortgage Capital Inc. (IVR) netting $140.78 based on a mean target price estimate from eight analysts;
Anworth Mortgage Asset Co. (ANH) netting $123.54, based on estimates from seven analysts;
Apollo Investment Corporation (NASDAQ:AINV) netting $111.73 based on a mean target price estimate from twelve analysts;
Capstead Mortgage Corp. (NYSE:CMO) netting $99.41, based on estimates from six analysts;
Triangle Capital Corp. (NYSE:TCAP) netting $88.67 based on estimates from six analysts;
The average net gain in dividend and price was 12.4% on $1k invested in each of these nine dogs.
The stocks listed above are suggested only as decent starting points for your consumer goods dividend stock purchase research process. These are not recommendations.
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.