Price results from financial sector stocks calculated as of September 30, 2013 were compared to analyst mean target price projections one year hence. The resulting chart from that data shown below featured eight stocks exhibiting 12% to 22% price upsides. MFA Financial, Inc. (NYSE:MFA) the New York based REIT-diversified industry firm with 12% showed the lowest upside of those eight. Anworth Mortgage Asset Corporation (NYSE:ANH) a Santa Monica, CA based REIT-diversified industry firm exhibited a 22.8% price upside to lead the sector.
The chart above used one year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment to compare ten financial 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 the fall of 2011 to reveal possible buy opportunities in each of eight major market sectors listed by Yahoo Finance: basic materials (BasMats), consumer goods (ConGo), financials (Fins), healthcare (Heal), industrial goods (IndiGo), services (Svcs), technology (Tec), and utilities (Utes).
This report presumed yield (dividend / price) dividend dog methodology applied to any sector and compared that sector side by side with the Dow industrial index leaders. Below, the Arnold Financial Sector top dog selections for September were disclosed step by step.
Dog Metrics Pointed Out Ten Top Financial Stocks
Top ten financial sector dogs showing the biggest dividend yields by Yahoo Finance's screen as of August 2 represented six industries. Top financial sector stock, New York Mortgage Trust Inc. (NASDAQ:NYMT) was one of five residential REITs. Others in that industry were CYS Investments (NYSE:CYS) in second place, Armour Residential REIT (NYSE:ARR) in third, and American Capital Agency (NASDAQ:AGNC) in fourth place. Another residential REITs positioned itself in the eighth slot: Dynex Capital Inc. (NYSE:DX). The lone REIT - retail, Resource Capital Corp. (NYSE:RSO) was fifth. Invesco Mortgage Capital Inc., the only mortgage investment firm was seventh dog. Diversified REITs were represented by Annaly Capital Management (NYSE:NLY), in ninth place, while TICC Capital Corp. (NASDAQ:TICC) a Closed End Fund-debt took the tenth slot and rounded out the top ten financial dogs by yield.
Sector Leader Dividend vs. Price Results Compared to Dow Index Dogs
The graph below of relative strengths of the top ten financial sector dogs by yield as of market close 9/30/2013 compared to those of the Dow industrials index was prepared to show projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks along with the total single share price of those ten stocks with the data points shown in green for price and blue for dividends.
Actionable Conclusion (1): Financial Dogs And Dow Both Bullish
September financial dividend dogs retreated from a bear after June, then became bullish after August. Aggregate dividend from $10k invested as $1k in each of the top ten stocks decreased at a rate of 9% since August while total single share price of those ten increased 57% for that period.
For the Dow dogs, meanwhile, annual dividend from $10k invested as $1K in each of the top ten dropped 1.5% since August, while aggregate single share price hopped up 6%, ending a bear track since June. Dow dogs increased 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, compressed to $125 or 33% in August then expanded to $161 or 43% for September.
To quantify the top dog rankings, analyst mean price target estimates provided a "market sentiment" gauge of upside potential and so were added to the simple high yield "dog" metric used to dig out bargains.
Actionable Conclusion (2): Wall Street Wizard Wisdom Wonked Over 18% Net Gain from Top 20 Financial Dogs Come 2014
Top twenty dogs in the financials sector were graphed below to show relative strengths by dividend and price as of September 30, 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 each of 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 7% lower dividend from $10K invested in this group while aggregate single share price for those ten was projected to increase by 6% in the coming year.
The number of analysts contributing to the mean target price estimate for each stock was noted in the next to 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 stock was provided in the far right column of 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 a stocks movement opposite of market direction.
Actionable Conclusion (3): Analysts Forecast Ten 2014 Financials DiviDog Net Gains of 18.2% to 31.1%
Five of the ten top dividend yielding financial dogs were verified as being among the ten gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy for the financial sector as graded by Wall St. wizards was 50% accurate.
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
Anworth Mortgage Asset Corporation netted $311.18 based on dividend plus mean target price estimates from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 80% less than the market as a whole.
New York Mortgage Trust Inc. netted $304.32, based on dividends plus mean target price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 71% less than the market as a whole.
Armour Residential REIT netted $270.48 based on a mean target price estimate from nine analysts combined with projected annual dividend less broker fees. The Beta number was not available for ARR.
CYS Investments, Inc. netted $269.93 based on estimates from eleven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 81% less than the market as a whole.
Invesco Mortgage Capital Inc. (NYSE:IVR) netted $266.64, based on dividend plus mean target price estimates from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 16% more than the market as a whole.
MFA Financial netted $217.33 based on dividends plus the mean of annual price estimates from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 62% less than the market as a whole.
Capstead Mortgage Corp. (NYSE:CMO) netted $206.77 based on a mean target price estimate from five analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 42% less than the market as a whole.
Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) netted $206.33, based on dividends plus mean target price estimates by eight analysts less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.
Hatteras Financial Corp. (NYSE:HTS) netted $189.65 based on dividends plus mean target price estimate from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 68% less than the market as a whole.
Dynex Capital Inc. netted $182.49, based on dividends plus mean target price estimates from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 13% less than the market as a whole.
The average net gain in dividend and price was over 24% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 52% less than the market as a whole.
The stocks listed above were suggested only as decent starting points for your sector dog dividend stock purchase research process. These were not recommendations.
These gains as reported do not factor-in any tax problems resulting from distributions. Consult your tax advisor regarding the source of "dividends" from any investment.
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.
Disclosure: I am long ARR, GE, INTC, 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.