Yield (dividend / price) results from here verified by Yahoo Finance for small, mid & large cap financial stocks as of market closing prices as of June 11 compared with analyst 1-yr target projections led to four actionable conclusions discussed below.
Wall Street Wizard Weights
One-year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment were used to compare ten stocks showing the highest upside price potential into 2015 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 was considered optimal for a valid mean target price estimate.
Actionable Conclusion (1) Nine June Financial Dividend Dogs Track 2.94% to 12.16% Upsides
Thirty For the Money
Since the fall of 2011, this report series has 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 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.
Dog Metrics Gauged Utilities Stocks by Yield
Top ten financial sector dogs showing the biggest dividend yields by this screen as of June 11 represented five industries: (1) mortgage investment; (2) residential REIT; (3) asset management; (4) diversified REIT; (5) closed end fund - debt. Top financial sector stock by yield, Western Asset Mortgage Capital Corp (NYSE:WMC) was one of two mortgage investment firms. The other, Ellington Financial LLC (NYSE:EFC), placed seventh.
The best of four residential REITs, CYS Investments (NYSE:CYS) was second dog. Others in that industry placed third, through fifth: Armour Residential REIT (NYSE:ARR); Resource Capital (NYSE:RSO); New York Mortgage Trust Inc (NASDAQ:NYMT). One asset management firm, Prospect Capital Corporation (NASDAQ:PSEC), placed sixth.
Two Diversified REITs took the eighth and ninth positions: American Capital Mortgage Investment Corp (NASDAQ:MTGE), and AG Mortgage Investment Trust, Inc. (NYSE:MITT). Finally, a business development company, listed as closed end fund - debt by Yahoo! Finance, TICC Capital Corp. (NASDAQ:TICC), completed the top ten financial dogs by yield.
Financial Sector Lead Dog Dividend vs. Price Results Compared to Dow Index Dogs
Graphs below compared relative strengths of the top ten financial sector dogs by yield as of market close 6/11/2014 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 And Dow Dogs Were Bullish Into June
Financial sector dividend payers as of June 11 showed sagging dividend from $10k invested as $1k in each of the top ten stocks, while aggregate single share price of those ten inched up. Dividend decreased at a rate of 2.5% since May while total single share price rose 1.9% for the period.
Dow dogs frolicked as projected annual dividend from $10k invested as $1K in each of the top ten declined 0.9% since May. At the same time aggregate single share price moved up 0.48% to confirm the bullish turn. 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 increased. The overhang of $111 or 29% in December/January, grew to $132 or 35% in February, expanded to $136 or 36% in March, widened again to $180 or 49% for April, retreated to $167 or 43% in May, then expanded to $193 or 53% for June.
To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metric, analyst mean price target estimates is another tool used to dig out bargains.
Actionable Conclusion (3): Wall Street Wizards Saw A 14.8% Net Gain from Top 20 Financial Dogs Come June 2015
Top twenty dogs in the financial sector were graphed below to show relative strengths by dividend and price as of June 11, 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 a 2% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by nearly 2% 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 Financial DiviDog Net Gains of 11% to Over 23% by June 2015
Five of the ten top dividend yielding financial dogs were verified as being among the nine 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 56% accurate.
Ten probable profit generating trades revealed by Yahoo Finance for 2015 were:
Prospect Capital Corporation netted $230.97, based on dividends plus mean target price estimates by ten analysts less broker fees. The Beta number showed this estimate subject to volatility 17% less than the market as a whole.
PennyMac Mortgage (NYSE:PMT) netted $206.00 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 40% less than the market as a whole.
American Capital Mortgage netted $205.11 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 53% less than the market as a whole.
Fifth Street Finance (NYSE:FSC) netted $184.88, based on dividends plus mean target price estimates from thirteen analysts less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.
Ellington Financial LLC netted $183.42 based on dividends plus a mean target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 42% less than the market as a whole.
TICC Capital Corp netted $169.85 based on dividends plus the mean of annual price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 24% less than the market as a whole.
Resource Capital netted $164.62, based on dividends plus mean target price estimates from two analysts less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.
Dynex Capital (NYSE:DX) netted $144.53, based on dividend plus mean target price estimates from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 15% less than the market as a whole.
PennantPark Investment Corporation (NASDAQ:PNNT) netted $109.35 based on estimates from six analysts plus dividends less broker fees. A Beta number was not available for PNNT.
The average net gain in dividend and price was over 17.7% on $10k invested as $1k in each of these nine dogs. This gain estimate was subject to average volatility 38% less than the market as a whole.
The 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.
Stocks listed above were suggested only as possible starting points for your index dog dividend stock purchase or sale 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.
Graphs and charts were compiled by Rydlun & Co., LLC from data derived from Yahoo Finance; analyst mean target price by Thompson/First Call in Yahoo! Finance.
Disclosure: The author is long ARR, FSC, CSCO, CVX, GE, INTC, MCD, MSFT, PFE, T, VZ. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.