10 Top Real Estate Dogs Run Down 14.3% To 24.4% Gains In April

by: Fredrik Arnold

Prompted by Seeking Alpha reader requests, this Morningstar/YChart (M/Y) report series began in February. It also complemented my reports of possible dividend yield based buy opportunities from eight major market sectors as listed by Yahoo Finance which I've posted since the fall of 2011.

So, responding to both the Seeking Alpha reader request and Ycharts.com migration to an eleven sector list, this report provided three actionable conclusions about the highest yield (dividend / price) stocks from the Morningstar/YCharts (M/Y) sectors: basic materials; communication services; consumer cyclical; consumer defensive; energy; financial services; healthcare; industrials; real estate; technology; utilities.

These dog theory picks were supplemented with one year mean target price estimates from broker analysts. Those results composed the Arnold m/y real estate sector selections for April shown below.

Dog Metrics Picked Prime M/Y Real Estate Stocks

Top ten real estate sector dogs showing the biggest dividend yields by Y/M's screen as of May 3 represented just three industries. Top real estate sector stock, American Capital (NASDAQ:AGNC) was one of four residential REITs. Others in that industry were New York Mortgage Trust (NASDAQ:NYMT), in second, Armour Residential REIT (NYSE:ARR), in fifth, Apollo Residential Mortgage (NYSE:AMTG) in seventh. American Capital Mortgage Investment (NASDAQ:MTGE), one of five diversified REITs in the top ten, was third. The other diversified REITs were JAVELIN Mortgage Investment (NYSE:JMI) in fourth, Anworth Mortgage Asset Corporation (NYSE:ANH) in sixth, Invesco Mortgage Capital (NYSE:IVR), in ninth, and AG Mortgage Investment Trust (NYSE:MITT) in tenth position. The remaining real estate services industry was represented by Alto Palermo (NASDAQ:APSA), in eighth place.

Dividend vs. Price Results Compared to Dow Dogs

Below is a graph of the relative strengths of the prime ten M/Y real estate dogs by yield as of market close 5/3/2013 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 dividend.

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Actionable Conclusion (1): M/Y Real Estate Dogs Bearish As Dow Went Bullish

The April m/y real estate collection of dividend payers took a slightly bearish price course as aggregate single share price dropped 1.8% since March. Dividend from $1k invested in each of the top ten m/y real estate stocks, popped up at a rate of 6.8% last month.

The Dow dogs, meanwhile, remained totally bullish last month as price popped up 7% and dividend sank 3.8%. The Dow extended an overbought condition as aggregated single share price exceeded dividend from $1k invested in each stock by $140.52 or 38%.

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 identify bargains.

Wall Street Wizard Wisdom Weighed

One year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment were used to compare ten 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 Too (2): Analysts Anticipate 15.7% Net Gain from Top 20 M/Y Real Estate Dogs In 2014

Top twenty dogs for the M/Y real estate sector were graphed below to show relative strengths by dividend and price as of May 3, 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 price upsides and net gains including dividends less broker fees of $20 as of 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 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.

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Yahoo projected over a 5.3% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by over 5.9% 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 was considered optimal for a valid projection estimate. Estimates provided by one analyst were not applied (n/a).

Actionable Conclusion Three (3): Analysts Forecast 10 Top M/Y Real Estate DiviDogs to Net 14.3% to 24.4% by 2014

Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:

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  1. American Capital Agency netted $244.19 based on dividends plus the mean of annual price estimates from seventeen analysts less broker fees;
  2. American Capital Mortgage netted $211.44 based on dividends plus the mean of annual price estimates from nine analysts less broker fees;
  3. ARMOUR Residential REIT netted $207.99 based on dividends plus a mean target price estimate from nine analysts less broker fees;
  4. PennyMac Mortgage (NYSE:PMT) netted $207.14 based on a mean target price estimate from six analysts combined with projected annual dividend less broker fees;
  5. Invesco Mortgage Capital (NYSE:ARI) netted $205.11, based on dividends plus a mean target price estimate from eight analysts less broker fees;
  6. New York Mortgage Trust netted $195.52 based on dividends plus a mean target price estimate from five analysts less broker fees;
  7. Anworth Mortgage Asset Corporation netted $194.75 based on target estimates from seven analysts plus dividends less broker fees;
  8. Apollo Residential Mortgage netted $192.67 based on target estimates from seven analysts plus dividends less broker fees;
  9. CYS Investments (NYSE:CYS) netted $188.16, based on dividends plus a mean target price estimate from thirteen analysts less broker fees;
  10. Western Asset Mortgage (NYSE:WMC) netted $143.53 based on estimates from seven analysts plus dividends less broker fees.

The average net gain was slightly over 19.9% on $1k invested in each of these ten real estate dogs.

The above net gain estimates did not factor-in any tax problems resulting from distributions (not dividends and K-1s) from MLPs and any possible re-capture tax problems/rates that could suck projected gains out of some of these estimates at the regular tax bracket rate and not capital gain rates. 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 M/Y sector dividend stock purchase research process. These were not recommendations.

Disclosure: I am long ARR, DD, GE, INTC, JNJ, MCD, MSFT, PFE, T, 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.

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.