This Morningstar/YChart (M/Y) report series was prompted by Seeking Alpha reader requests and began in February. This series 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 one of the Morningstar/YCharts (M/Y) sectors: basic materials, communication services, consumer cyclical, consumer defensive, energy, financial services, healthcare, industrials, real estate, technology and utilities.
These dog theory picks were supplemented with one year mean target price estimates from broker analysts. Those results composed the Arnold m/y financial services sector selections for April shown below.
Dog Metrics Select Star Financial Services Dogs
The sterling ten financial services stocks showing the biggest dividend yields as of May 7 according to Y/M screens represented five industries. The top financial services sector stock, California First National Bancorp (CFNB) was the only regional bank listed. Second dog, Arlington Asset Investment (NYSE:AI), is one of three specialty financial firms on the list. Other specialty financial firms showed up in the third and seventh slots, Dominion Resources Black Warrior Trust (DOM) and Ellington Financial LLC (NYSE:EFC). One of two credit services firms was fourth on the list, Full Circle Capital (NASDAQ:FULL). Fifth Street Finance (NASDAQ:FSC), the other credit services firm, took tenth place. One of three asset management firms in the top ten, Prospect Capital Corporation (PSEC) was fifth. The other asset managers were TICC Capital (NASDAQ:TICC), in seventh, and BlackRock Kelso Capital Corporation (BKCC) in ninth. The ten financial services dogs for February were completed by Life Partners Holdings, Inc. (LPHI) as the lone life insurance firm became sixth dog on the list.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the top ten M/Y financial services dogs by yield as of market close 5/7/2013 compared to those of the Dow. Historic projected annual dividend history from $1,000 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.
Actionable Conclusion (1): M/Y Financial Services Dogs Flashed Mixed Message as Dow Stayed Bullish
The April m/y financial services collection of dividend payers ended a (bullish) upward price course set since November, 2012, as aggregate single share price (bearishly) slumped 12.45% in the past month. However total dividend from $1k invested in each of those top ten dogs also (bullishly) declined .4% in the past month to send a mixed message to investors.
The Dow dogs, meanwhile, stayed on the bull path since March. Their aggregate single share price popped up 7% as dividends from $1k invested in each sank 3.8%. The Dow dogs extended an overbought condition as aggregated single share price exceeded dividends 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 cull out bargains.
Wall Street Wizards Weighed In
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 Two (2): Analysts Augur 13.9% Net Gain from Top 20 M/Y Financial Services Dogs In 2014
Twenty dogs for the M/Y financial services sector were graphed below to show relative strengths by dividend and price as of May 7, 2013, and those projected by analyst mean price target estimates to the same date in 2014.
A hypothetical $1,000 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 as of 2014.
Historic prices and actual dividends paid from $1,000 invested in the highest yielding stocks and the aggregate single share prices of those 20 stocks divided by 2 created data points for 2013. Projections based on estimated increases in dividend amounts from $1,000 invested in the 20 highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 2 created the 2014 data points in green for price and blue for dividends.
Yahoo projected an 8.7% lower dividend from $10K invested in this group while aggregate single share price for the group was projected to increase by 11.2x% 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 Ten Star M/Y Financial Services DiviDogs to Net 11.9% to 22.6% in 2014
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
TICC Capital netted $196.40 based on dividends plus mean target price estimates from five analysts less broker fees.
Och-Ziff Capital Management (NYSE:OZM) netted $220.61, based on dividends plus a mean target price estimate off nine analysts less broker fees.
OFS Capital (NASDAQ:OFS) netted $197.92 based on a mean target price estimate from four analysts combined with projected annual dividend less broker fees.
Solar Capital (NASDAQ:SLRC) netted $184.73 based on a mean target price estimate from nine analysts combined with projected annual dividend less broker fees.
Horizon Technology Finance (NASDAQ:HRZN) netted $160.25 based on estimates from five analysts plus dividends less broker fees.
Arlington Asset Investment netted $154.13 based on dividends plus mean target price estimates from four analysts less broker fees.
TCP Capital (NYSE:TCP) netted $149.44 based on dividends plus the mean of annual price estimates from four analysts less broker fees.
Prospect Capital Corp netted $138.09, based on dividends plus mean target price estimates from four analysts less broker fees.
Carlyle Group (NASDAQ:CG) netted $123.08, based on dividend plus mean target price estimates from eleven analysts less broker fees.
Pennant Park Investment Co. (NASDAQ:PNNT) netted $119.23 based on target estimates from eleven analysts plus dividends less broker fees.
The average net gain in dividend and price was slightly over 16.7% on $1k invested in each of these ten 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.
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.