Financial services sector results tallied from Morningstar/YChart (M/Y) as of market closing prices June 28 compared with analyst mean target gain results one year hence showed 10 top stocks exhibiting 7.70% to 16.79% price upsides.
The chart above used the one year mean target price set by brokerage analysts matched against June 28 closing price to compare ten sector 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 were considered optimal for a valid mean target price estimate.
This report series started applying dog dividend methodology in February prompted by Seeking Alpha reader requests. It complemented reports of possible dividend yield based buy opportunities from eight major market sectors as listed by Yahoo Finance posted since the fall of 2011.
So, responding to both the Seeking Alpha reader requests and Ycharts.com migration to an eleven sector list, this report series 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.
Below the author compared Dow dividend dog theory picks with one year mean target price estimates reported from broker analysts to reveal the following Arnold M/Y financial services selections for May/June:
Dog Metrics Served Up Ten M/Y Financial Services Stocks
Ten financial services stocks showing the biggest dividend yields as of June 28 according to Y/M screens represented five industries. Top financial services sector stock, Man Group plc (OTC:MNGPY) was one of six asset management firms in the top ten. Other asset managers placed fifth through eighth and tenth: Administradora de Fondos de Pensiones-Provida (PVD); Prospect Capital Corporation (PSEC); TICC Capital (TICC); BlackRock Kelso Capital Corporation (BKCC); Oaktree Capital Group (OAK). Second dog, Ellington Financial LLC (EFC) was tops of two specialty financial firms on the list. The other specialty finance firm Arlington Asset Investment (AI), placed fourth. The lone regional bank listed, California First National Bancorp (CFNB) was third. One credit services firm, Fifth Street Finance (FSC) completed the ten financial services dogs in ninth place.
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 6/28/2013 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.
Actionable Conclusion (1): M/Y Financial Services Dogs Flashed Mixed Message as Dow Stayed Bullish
The May/June m/y financial services collection of dividend payers were caught in a rising tide as both aggregate single share price of the ten dogs and dividend from $10k invested in each of those top ten dogs jumped up in the month past. Price was up 91% while dividends popped 6%.
For the Dow dogs, meanwhile, projected annual dividend from $1k invested in each of the top ten dropped over 2.2% since April, while aggregate single share price popped up over 13.6%. The Dow dogs bull run increased their overbought condition as aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten by over $198 or 53%.
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.
Actionable Conclusion Two (2): Wise Wall Street Wizards Weighed In to Reveal 16.57% Net Gain from Top 20 Financial Services Dogs By 2014
Twenty dogs for the M/Y financial services sector were graphed below to show relative strengths by dividend and price as of June 28, 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 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.
Yahoo projected an 7.7% lower dividend from $10K invested in this group while aggregate single share price for the group was projected to increase by 8.6% 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).
A beta (risk) ranking for each analyst rated stock was provided in the far right column on the above chart. 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.
Actionable Conclusion Three (3): Analysts Predict Ten M/Y Financial Services DiviDogs to Net 15.3% to 25.8% in 2014
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
- Ellington Financial netted $258.39, based on dividends plus a mean target price estimate off six analysts less broker fees;
- Medley Capital (MCC) netted $253.93 based on a mean target price estimate from twelve analysts combined with projected annual dividend less broker fees;
- TICC Capital netted $244.03 based on dividends plus mean target price estimate from five analysts less broker fees;
- Apollo Investment (AINV) netted $239.69, based on dividends plus mean target price estimate from eleven analysts less broker fees;
- Horizon Technology Finance (HRZN) netted $223.81 based on estimates from five analysts plus dividends less broker fees;
- Solar Capital (SLRC) netted $222.10 based on a mean target price estimate from ten analysts combined with projected annual dividend less broker fees;
- Arlington Asset Investment netted $195.41 based on dividends plus mean target price estimate from four analysts less broker fees;
- Fifth Street Finance Corp netted $181.15, based on dividend plus mean target price estimates from ten analysts less broker fees;
- BlackRock Kelso Capital netted $173.38 based on dividends plus the mean of annual price estimates from six analysts less broker fees;
- New Mountain Finance (NMFC) netted $153.02 based on target estimates from four analysts plus dividends less broker fees.
The average net gain in dividend and price was slightly over 21.45% on $1k invested in each of the ten dogs. Their average beta was 0.61.
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.