Arlington Asset Investment Corp. (AI), the Arlington, VA headquartered mortgage backed-investment firm formerly known as Friedman, Billings, Ramsey Group, showed a 28.74% price upside to lead the top ten financial services dogs. Sector results tallied from Morningstar/YChart (M/Y) as of market closing prices August 21 compared with analyst mean target gain results one year hence showed the 10 top stocks exhibited 9.30% up to Arlington's 28.75% price upsides.
The chart above used the one year mean target price set by brokerage analysts matched against August 21 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 financial services sector selections for July/August:
Dog Metrics Selected Ten M/Y Financial Services Stocks
Ten financial services stocks showing the highest dividend yields as of August 21 according to Y/M screens represented four industries. Top financial services sector stock, Arlington Asset Investment (AI) was tops of two specialty financial firms on the list. The other specialty finance firm was second dog, Ellington Financial LLC (EFC). The lone regional bank listed, California First National Bancorp (CFNB) was third. Six asset management firms placed fourth through ninth: KCAP Financial (KCAP); Prospect Capital Corporation (PSEC); Administradora de Fondos de Pensiones-Provida (PVD); TICC Capital (TICC); OFS Capital (OFS); Oaktree Capital Group (OAK). One credit services firm, Fifth Street Finance (FSC) completed the top financial services dogs in tenth 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 8/21/2013 compared to those of the Dow. Projected annual dividend history from $10,000 invested as $1k 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 Chased Bulls as Dow Cowered
Since June M/Y financial services dogs were bullish. Aggregate single share price of the ten dogs moved up 4.9% and dividend from $10k invested as $1k in each of those top ten dogs drooped 0.7%.
For the Dow dogs, meanwhile, annual dividend from $1k invested in each of the top ten increased 3.6% since July, while aggregate single share price dropped 2.6%, continuing the bear track since June. Dow dogs decreased their overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten by over $198 or 53% in June, then shrunk to $153 or 41% in July, and kept compressing to $125 or 33% in August.
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 hunt down bargains.
Actionable Conclusion 2: Wall Street Wizard Wisdom Wrestled An 18% Net Gain from Top 20 M/Y Financial Services Dogs
Twenty dogs for the M/Y financial services sector were graphed below to show relative strengths by dividend and price as of August 21, 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 8% lower dividend from $10K invested in this group while aggregate single share price for the group was projected to increase by 9% in the coming year. The number of analysts contributing to the mean target price estimate for each stock was noted in the next to 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. A negative beta number indicated the degree of stock price movement opposed to market direction.
Actionable Conclusion 3: Analysts Guess 2014 M/Y Financial Services Dogs to Net 18% to 42%
Ten probable profit generating trades were revealed by Thomson/First Call and reported by Yahoo Finance for 2014:
Arlington Asset Investment (AI) netted $418.17 based on dividends plus mean target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 33% less than the market as a whole.
OFS Capital (OFS) netted $294.07 based on target estimates from three analysts plus dividends less broker fees. A Beta number was not available for OFS.
Ellington Financial (EFC) netted $253.81, based on dividends plus a mean target price estimate off six analysts less broker fees. The Beta number showed this estimate subject to volatility 38% less than the market as a whole.
Oaktree Capital Group (OAK) netted $253.14 based on dividends plus the mean of annual price estimates from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 59% less than the market as a whole.
Horizon Technology Finance (HRZN) netted $241.25 based on estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 60% less than the market as a whole.
Medley Capital (MCC) netted $232.39 based on a mean target price estimate from twelve analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 69% less than the market as a whole.
Apollo Investment (AINV) netted $230.00 based on dividends plus mean target price estimate from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 18% more than the market as a whole.
TICC Capital (TICC) netted $220.70 based on dividends plus mean target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 14% less than the market as a whole.
Monroe Capital (MRCC) netted $217.44 based on a mean target price estimate from four analysts combined with projected annual dividend less broker fees. A Beta number was not available for MRCC.
Fifth Street Finance Corp (FSC) netted $183.26 based on dividend plus mean target price estimates from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 1% more than the market as a whole.
The average net gain in dividend and price was 25.44% on $10k invested as $1k each in these ten basic materials dogs. This gain estimate was subject to average volatility 32% less than the market as a whole.
Net gain estimates above did not factor-in any foreign or domestic tax problems resulting from distributions. 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.