Yield (dividend/price) results from here, verified by Yahoo Finance for monthly dividend-paying small, mid, & large cap (S/M/L) stocks as of market closing prices August 15, were augmented by analyst 1-yr. target projections to reveal four actionable conclusions discussed below. Small cap firms were valued at $200M(illion) to $2B(illion); mid cap firms were worth $2B to $10B; large caps were valued above $10B.
Wall Street Wizard Weights
One-year mean target prices 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 have demonstrated the most accurate mean target price estimates.
Actionable Conclusion (1) Ten August Financial Dividend Dogs Mark 4% to 11% Upsides
Thirty For the Money
Since late 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 two years, 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 Screened Financial Stocks by Yield
The top ten financial sector dogs showing the biggest dividend yields by this screen as of August 18, 2014 represented six industries: (1) mortgage investment; (2) residential REIT; (3) diversified REIT; (4) mortgage investment; (5) asset management; (6) closed end fund - debt. The 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 eighth. The best of four residential REITs, Resource Capital (NYSE:RSO) was second dog. Others in that industry placed third through fifth: ARMOUR Residential REIT (NYSE:ARR); CYS Investments (NYSE:CYS); New York Mortgage Trust Inc. (NASDAQ:NYMT). Two diversified REITs took the sixth and seventh positions: American Capital Mortgage Investment Corp. (NASDAQ:MTGE) and AG Mortgage Investment Trust, Inc. (NYSE:MITT). One business development company listed as an asset management firm, Prospect Capital Corporation (NASDAQ:PSEC), placed ninth. Finally, a business development company, listed as a closed end fund - debt by Yahoo Finance, TICC Capital Corp. (NASDAQ:TICC), in tenth place completed the list of top ten financial dogs by yield.
Financial Top Dog Dividend vs. Price Results Compared to Dow Dogs
The graphs below compared relative strengths of the top ten financial sector dogs by yield as of market close 8/18/2014 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 Ran Bullish As Dow Dogs Cowered After July
Financial sector dividend payers as of August 18 frolicked joyfully as they ran with bulls. Dividend from $10k invested as $1k in each of the top ten stocks fell, while aggregate single share price of those ten rose. Dividend dropped at a rate of 2.7% since July, while total single share price ramped up 3.6% for the period.
Meanwhile, Dow dogs reversed and retreated by showing bigger annual dividend from $10k invested as $1K in each of the top ten increasing 3.5% after July, while aggregate single share price dropped 2.8%.
As a result, the Dow dogs' overbought condition (in which aggregate single share price of the ten exceeded projected annual dividend from $10k invested as $1k each in those ten) declined from its new high. The overhang was $145, or 38%, for January; retreated to $125, or 33%, in February; swelled to $149, or 40%, in March; expanded to $173, or 47%, in April; shrank to $170, or 46%, come May; swelled to $215, or 59%, for July; then fell back to $190, or 51%, in August.
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 provided another tool to dig out bargains.
Actionable Conclusion (3): Wall Street Wizards Wished A 14.97% Net Gain from Top 20 Financial Dogs By August 2015
The top twenty dogs in the financial sector were graphed below to show relative strengths by dividend and price as of August 18, 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.
Historical 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 shown in green for price and blue for dividend.
Yahoo projected a 3.5% lower dividend from $10K invested in this group, while aggregate single share price was projected to increase by nearly 4.4% 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 Assessed Financial DiviDog Net Gains of 14.7% to Near 23% Come August 2015
Six 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 60% accurate.
Ten probable profit-generating trades revealed by Yahoo Finance for 2015 were:
Resource Capital was projected to net $229,07, based on dividends plus mean target price estimates from three analysts less broker fees. The Beta number showed this estimate subject to volatility 18% less than the market as a whole.
American Capital Mortgage was projected to net $204.56, based on a mean target price estimate from seven 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.
Pennymac Mortgage (NYSE:PMT) was projected to net $200.59, 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 40% less than the market as a whole.
ARMOUR Residential REIT was projected to net $195.64, based on dividend plus mean target price estimates from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 61% less than the market as a whole.
TICC Capital Corp. was projected to net $173.42, 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.
Invesco Mortgage Capital (NYSE:IVR) was projected to net $164.60, based on dividends plus a mean target price estimate from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 14% greater than the market as a whole.
Prospect Capital Corporation was projected to net $159.72, based on dividends plus mean target price estimates by eight analysts less broker fees. The Beta number showed this estimate subject to volatility 17% less than the market as a whole.
Dynex Capital (NYSE:DX) was projected to net $150.73, based on dividends 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.
Fifth Street Finance (NYSE:FSC) was projected to net $149.23, 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 was projected to net $147.4, based on dividends plus a mean target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 42% less than the market as a whole.
The average net gain in dividend and price was estimated at over 17.74% 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 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 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.
Disclosure: The author is long ARR, FSC, CSCO, GE, INTC, 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.