Seeking Alpha
Dividend investing, growth, momentum
Profile| Send Message|
( followers)  

This end of month report tallied results from here as verified using Yahoo Finance data for financial sector stocks as of market closing prices November 1 along with analyst mean target price results one year hence. The comparison showed 5 stocks boasting 15.04% to 97.22% price upsides. Newcastle Investment Corp. (NYSE:NCT) the New York headquartered diversified REIT with 15.04% showed the least upside of those five. One step higher, Armour Residential REIT (NYSE:ARR) the Vero Beach, FL based Delaware corporate investor in residential mortgage backed securities posted a 16.22% upside. At the midpoint of five, Kohlberg Capital (NASDAQ:KCAP) a diversified investments company from New York showed 16.69% upside. One step below the top, American Capital Mortgage Investment Corp (NASDAQ:MTGE) the Bethesda, MD based diversified REIT exhibited a 19.9% price upside. Troubled p&c insurance firm, Tower Group International, Ltd. (NASDAQ:TWGP) based in Bermuda, sported over 97% upside to lead those five. Five other Financials back in the pack showed 8.9% to 13% price upsides.

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 series of articles 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 October were disclosed step by step.

Dog Metrics Pointed Out Ten Top Financial Stocks

Top ten financial sector dogs showing the biggest dividend yields by this screen as of November 1 represented four industries. Top financial sector stock, Western Asset Mortgage Capital Corp (NASDAQ:NYMT) was the lone Mortgage Investment firm. Second dog was Tower Group International, Ltd. the lone insurance firm. The best of four residential REITs, New York Mortgage Trust Inc. placed third. Others in that industry were CYS Investments (NYSE:CYS) in fourth place, American Capital Agency (NASDAQ:AGNC) in sixth place, and Armour Residential REIT in seventh. Diversified REITs were represented by Javelin Mortgage Investment Corp (NYSE:JMI) in fifth place, AG Mortgage Investment Trust, Inc. (NYSE:MITT), in eighth place, American Capital Mortgage Investment Corp in ninth, and Resource Capital (NYSE:RSO) 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 11/1/2013 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.

(click to enlarge)

Actionable Conclusion (1): Financial Dogs Get Bearish as Dow Dithers

October financial dividend dogs retreated from a bear after June, became bullish after August, and got mauled after September. Aggregate dividend from $10k invested as $1k in each of the top ten stocks increased at a rate of 15.4% since September while total single share price of those ten dropped 34.6% for that period. The fully bearish market signal was primarily caused by a migration to a more inclusive stock screen for price and dividend data.

For the Dow dogs, meanwhile, projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs dropped just 0.6% since September, while aggregate single share price swooned 11%, ending a brief bullish track. The Dow dogs overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten shrank. The overhang was $198 or 53% in June, then shrunk to $153 or 41% in July, compressed to $125 or 33% in August, then expanded to $161 or 43% for September, then shrank down to $111 or 30% for October.

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 Wizards Wanted Over 24% 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 November 1, 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.

(click to enlarge)

Yahoo projected a 9.6% lower dividend from $10K invested in this group while aggregate single share price for those ten was projected to increase by 9.6% 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 stock's movement opposite of market direction.

Actionable Conclusion (3): Analysts Forecast Ten 2014 Financials DiviDog Net Gains of 22.3% to 113.5%

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:

(click to enlarge)

Tower Group International, Ltd. netted $1135.56 based on dividend plus mean target price estimates from five analysts less broker fees. The Beta number showed this estimate subject to volatility 43% less than the market as a whole.

American Capital Mortgage netted $322.56 based on a mean target price estimate from eight analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 31% less than the market as a whole.

Armour Residential REIT netted $287.51 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.

New York Mortgage Trust Inc. netted $267.48, based on dividends plus mean target price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 70% less than the market as a whole.

Kohlberg Capital. netted $266.91, based on dividends plus mean target price estimates by four analysts less broker fees. The Beta number showed this estimate subject to volatility 46% more than the market as a whole.

Newcastle Investment Corp. netted $258.99 based on dividends plus mean target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 67% more 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 (NYSE:MFA) netted $231.46 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 65% less than the market as a whole.

CYS Investments, Inc. netted $228.53 based on estimates from twelve analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 95% less than the market as a whole.

Dynex Capital Inc. (NYSE:DX) netted $223.02, based on dividends plus mean target price estimates from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 12% less than the market as a whole.

The average net gain in dividend and price was over 34.5% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 29% 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.

Source: 5 Financial Sector Dogs Boast 15% To 97% October Upsides