This monthly report tallied results from here as verified using Yahoo Finance data for financial sector stocks as of market closing prices January 13 along with analyst mean target price results one year hence. The comparison found six stocks producing near 10% to 21% price upsides.
At the low end of the top six, Newcastle Investment Corp. (NCT) a New York diversified REIT showed 10.24% price upside. One step up, MFA Financial (NYSE:MFA) another New York diversified REIT claimed 11.63% upside. In fourth place, American Capital Agency (NASDAQ:AGNC) a Bethesda, MD residential REIT made a 11.64% upside. CYS Investments, Inc. (NYSE:CYS) a residential REIT based in Waltham, MA was third ringing up 15.16%. Armour Residential REIT (NYSE:ARR) from Vero Beach, FL posted 15.23% upside to take second. At the top, American Capital Mortgage (NASDAQ:MTGE) another Bethesda, MD based diversified REIT exhibited a 23.47% price upside to lead the January financial sector. Four more dogs at the back of the financial pack showed 6.3% to 9.22% price upsides. This was the first actionable conclusion within this article.
The chart above used one year mean target price set by brokerage analysts matched against January 13 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.
Thirty For the Money
Since the fall of 2011 this report series applied dog dividend methodology to uncover 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). In the past year the series has expanded to report (1) dividend yield; (2) price upside; (3) net gain results based on analyst 1 yr target projections.
Dog dividend methodology is based on Michael B. O'Higgins book "Beating The Dow" (HarperCollins, 1991), which revealed how high yielding stocks whose prices increased (and whose dividend yields therefore decreased) could be sold off once a year to sweep gains and reinvest the seed money into higher yielding stocks in the same index. Now named Dogs of the Dow, O'Higgins system also works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates has expanded the stock lists to include popular growth equities, if desired.
The report below tallied yield (dividend / price) results from Yahoo Finance for the financial sector as of market closing prices January 13 and compared them to results for the top ten dogs of the Dow. Arnold top financial dog selections for January were disclosed below step by step. Three additional actionable conclusions were drawn to total four including the price upside insight noted above.
Dog Metrics Measured Financial Stocks by Yield
Top ten financial sector dogs showing the biggest dividend yields by this screen as of January 13 represented three industries: (1) mortgage investment; (2) residential REIT; diversified REIT. Top financial sector stock, Western Asset Mortgage Capital Corp (NYSE:WMT) was one of two Mortgage Investment firms. The other, Invesco Mortgage Capital (NYSE:IVR), placed ninth. The best of five residential REITs, American Capital Agency was second dog. Others in that industry placed third, fourth, fifth, and tenth: CYS Investments ; New York Mortgage Trust Inc (NASDAQ:NYMT) ; Armour Residential REIT ; Dynex Capital (NYSE:DX). Diversified REITs in sixth, seventh, and eighth positions, were AG Mortgage Investment Trust, Inc. (NYSE:MITT), American Capital Mortgage Investment Corp , Annaly Capital (NYSE:NLY), and Resource Capital (NYSE:RSO) to round out the top ten financial dogs by yield.
Sector Leader Dividend vs. Price Results Compared to Dow Index Dogs
The graphs below compare relative strengths of the top ten financial sector dogs by yield as of market close 1/13/2014 with those of the Dow industrials index. 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 made the data points shown in green for price and blue for dividends.
Actionable Conclusion (2): Financial Dogs Dithered As Dow Dogs Ran from Bears
Financial sector dividend payers as of January 13 showed sagging dividend from $10k invested as $1k in each of the top ten stocks, and also aggregate single share price of those ten dropped. Dividend dropped at a rate of 0.65% since November while total single share price fell just 0.1% for that period.
For the Dow dogs, meanwhile, projected annual dividend from $10k invested as $1K in each of the top ten Dow dogs increased over 2.5% since November as aggregate single share price fell nearly 4%. The Dow dogs overbought condition in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested in those ten (@$1k each) shrank again. The overhang was $161 or 43% for September; shrank down to $111 or 30% for October; expanded to $140 or 38% to end November; shrank back to $111 or 29% into December/January.
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 (3): Wall Street Wizards Saw Nearly A 19% Net Gain from Top 20 Financial Dogs Come 2015
Top twenty dogs in the financial sector were graphed below to show relative strengths by dividend and price as of January 13, 2014 and those projected by analyst mean price target estimates to the same date in 2015.
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 2015.
Historic prices and actual dividends paid from $20,000 invested as $1k in each of the highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 created data points for 2014. Projections based on estimated 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 2015 data points green for price and blue for dividend.
Yahoo projected over 6.4% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by over 7.5% 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 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 a stock price movement opposite market direction.
Actionable Conclusion (4): Analysts Forecast 2015 Financial DiviDog Net Gains of 19.5% to 33%
Eight 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 80% accurate.
Ten probable profit generating trades revealed by Yahoo Finance for 2015 were:
American Capital Mortgage netted $330.00 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 34% less than the market as a whole.
CYS Investments, Inc. netted $299.75 based on estimates from twelve analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 77% less than the market as a whole.
Western Asset Mortgage (NYSE:WMC) netted $283.51, based on dividends plus mean target price estimates from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 40% less than the market as a whole.
American Capital Agency netted $279.76 based on dividend plus mean target price estimates from seventeen analysts less broker fees. The Beta number showed this estimate subject to volatility 83% less than the market as a whole.
Armour Residential REIT netted $279.75 based on a mean target price estimate from nine analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 65% less than the market as a whole.
MFA Financial netted $207.15 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 63% less than the market as a whole.
Newcastle Investment Corp. netted $205.69 based on dividends plus a mean target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 60% more than the market as a whole.
Invesco Mortgage Capital Inc. netted $205.69, based on dividend plus mean target price estimates from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 28% more than the market as a whole.
New York Mortgage Trust Inc netted $201.41, based on dividends plus mean target price estimates by four analysts less broker fees. The Beta number showed this estimate subject to volatility 76% less than the market as a whole.
Dynex Capital netted $194.63, based on dividends plus mean target price estimates from five analysts less broker fees. The Beta number showed this estimate subject to volatility 16% less than the market as a whole.
The average net gain in dividend and price was over 24.8% on $10k invested as $1kin each of these ten dogs. This gain estimate was subject to average volatility 49% less than the market as a whole.
These gains as estimated do not factor-in extraneous market fluctuations or any tax problems resulting from distributions. Consult your tax advisor regarding the source of "dividends" from any investment.
The stocks listed above were suggested only as decent starting points for your sector dog 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.
Disclosure: I am long ARR, FSC, CSCO, CVX, 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.