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

Summary

  • Russell 2000 small cap dividend dogs saw 1 yr. analyst target price upsides averaging 8.96% as of August 29 but one R2K was down 22.73% as bear bait.
  • One Russell 1000 large-cap dog fetched an 8.37% upside.
  • (Ranked by yield) top ten Russell 2000 dog mixed down; ten Dow dividend dogs retreated from bears; Russell 1000 top ten got bullish in August.
  • Analysts projected average 18.5% 1 yr. net gains for NTLS, RSO, ARR, AMTG, PMT, SDRL, IVR, HTS, DX, and ANH. A net loss of 15.3% collared AT.
  • Consider these as starting points for your August Russell 2000 & Russell 1000 index dividend dog stock purchase/sale research.

Russell Investments reconstituted its Russell 2000 Small-Cap & Russell 1000 Large-Cap constituents in June and in so doing purged business development company stocks among other changes. A combined list of the two indices as of market closing prices August 29 was compared to analyst mean target price projections one year later. A chart of that data shown below highlighted four of the top ten posting double digit upside percentages but one Russell 2000 dog was alleged to go negative by over 22%.

This report presumed yield (dividend / price) dividend dog methodology applied to any index and compared that index side by side with the Dow. Below, Arnold active dog selections for August were disclosed step by step. Five actionable conclusions were drawn.

Actionable Conclusion (1): 10 Russell Dogs Sought 3.9% to 22.8% Upsides While 1 Dropped 22.7% Per analyst 1 year August targets

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 Russell 2000/1000 Index 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 were considered optimal for a valid mean target price estimate.

Seeking Alpha reader requests prompted this series of index-specific articles reporting dividend yield plus price upside results for these indices: Dow 30; S&P 500 & Aristocrats; Russell 2000 & 1000; NASDAQ 100; Champions, Contenders, & Challengers Combined; Global. Bonus reports covered, Sindex AllStars, and Sector Leaders.

Sixty For the Money

Bargain stocks to buy and hold for at least one year are but one component in this ongoing series that has reported (1) dividend yield; (2) price upside; (3) net gain results based on analyst 1 yr target projections. Stocks reported were termed dogs because they were all selected 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, named Dogs of the Dow. O'Higgins system works to find bargains in any collection of dividend paying stocks. Utilizing analyst price upside estimates expanded the stock universe to include popular growth equities, if desired.

Dog Metrics Measured Russell Index Stocks by Yield

(1) Russell 2000 (top 30)

Russell Investments states:

"The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

The Russell 2000 Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually (in June) to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set."

Russell 2000 stocks were ranked by yields calculated as of August 29 to reveal the top ten. Price and dividend data was sourced from Yahoo.com.

Ten stocks in this index promising the biggest yields through August represented just two of nine business sectors: financials, and technology. Resource Capital (NYSE:RSO) as top dog, was one of nine financial firms. Others in the financial sector placed second through fourth and sixth through tenth: Armour Residential REIT (NYSE:ARR) [2]; CYS Investments (NYSE:CYS) [3]; New York Mortgage Trust Inc. (NASDAQ:NYMT) [4]; Dynex Capital, Inc. (NYSE:DX) [6]; Invesco Mortgage Capital Inc. (NYSE:IVR) [7]; Anworth Mortgage Asset (NYSE:ANH) [8]; PennyMac Mortgage Investment Trust (NYSE:PMT) [9]; Capstead Mortgage Corp. (NYSE:CMO) [10].

The lone technology dog in the top ten, NTELOS Holdings Corp. (NASDAQ:NTLS) placed fifth. This completed the Russell 2000 top ten small cap dogs.

(2) Russell 1000 (top 30)

Russell Investments states:

"The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.

The Russell 1000 Index is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually (in June) to ensure new and growing equities are reflected."

Top ten stocks in this index promising the biggest yields in August represented three of nine sectors: financial, basic materials, and technology. Top and bottom dogs were financial firms, American Capital Agency (NASDAQ:AGNC) led, followed by Chimera Investment Corp. (NYSE:CIM) [2], but Hospitality Properties Trust (NYSE:HPT) was at the tail [10].

A lone basic materials company, Seadrill Limited (NYSE:SDRL) placed third, while one technology firm, Windstream Corp (NASDAQ:WIN), placed seventh.

Finally, five more financial firms placed fourth, fifth, sixth, eighth and ninth: Annaly Capital Management Inc. (NYSE:NLY) [4]; Two Harbors Investment (NYSE:TWO) [5]; MFA Financial Inc (NYSE:MFA) [6]; Starwood Property Trust Inc. (NYSE:STWD) [8]; Senior Housing Property Trust Inc. (NYSE:SNH) [9] to complete the Russell 1000 top ten dogs.

Dividend vs. Price Results Compared to Dow Dogs

Relative strengths of the top ten Russell 2000 dogs and the Russell 1000 dogs by yield as of market close 8/29/2014 compared to those of the Dow were graphed below. Projected annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks and the total single share prices of those ten stocks created the data points shown in green for price and blue for dividend.

(click to enlarge)

(click to enlarge)

Actionable Conclusion (2): Russell 2000 Dithered Down; Dow Got Bearish Into August; Russell 1000 Turned Bullish.

August Russell 2000 small cap dividend dogs sent a mixed signal as both dividend and price dropped. In the past month, Russell 2000 top ten dog annual dividend from $10k invested as $1k in each dog fell 0.5% while aggregate single share price of the ten declined 11% to confirm the dither down.

Dow dogs panicked as projected annual dividend from $10k invested as $1K in each of the top ten jumped 3.2% since July. At the same time aggregate single share price fell 2% to confirm the bearish month.

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) grew. The overhang of $136 or 36% in March, widened again to $180 or 49% for April, retreated to $167 or 43% in May, expanded to $193 or 53% for June, grew to $220 or 61% for July, then shrank to $197 or 53% for August.

The August Russell 1000 collection of large cap dividend payers romped bullishly. Annual dividend from 10k invested as $1k in each top ten dog dropped 2.2% since July while aggregate single share price of those ten leaped 15.5%.

A consolidation of the Russell 2000 & Russell 1000 Indices constituents listed as of market closing prices August 29 and re-named Russell 2000/1000 ranked themselves by yield as follows:

To quantify the top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential and was added to the simple high yield "dog" metric used to dig out bargains.

Actionable Conclusion (3): Wall St. Wizards Wrested A 13.36% Net Gain from Top 20 Russell 2000/1000 Dogs For August 2015

Top twenty dogs from the Russell 2000/1000 index were graphed below to show relative strengths by dividend and price as of August 29, 2014 along with dividend and price 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 dividends to find the projected 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 $1000 invested in 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 increases in 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 dividends.

(click to enlarge)

Yahoo projected 2.6% lower dividend from $10K invested a $1k in each stock in this group while aggregate single share price of those ten was projected to increase 4.8% 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 estimate.

A beta (risk) ranking for each analyst rated 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 numbers indicated the degree of a stocks movement opposed to market direction.

Actionable Conclusion (4): Analysts Assayed 10 Russell 2000/1000 DiviDogs to Net 13% to 33.5% By August 2015

Six of the top dividend yielding Russell 2000/1000 dogs were verified as being among the top ten gainers for the coming year based on analyst 1 year target prices. So this month the dog strategy as graded by Wall St. wizards was 60% accurate.

Ten probable profit generating trades revealed by Yahoo Finance into 2015 were:

NTELOS Holdings Corp netted $335.57 based on dividends plus the mean of annual price estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 12% more than the market as a whole.

Resource Capital netted $226.75 based on dividends plus mean target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 27% less than the market as a whole.

Armour Residential REIT netted $192.77, 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.

Apollo Residential Mortgage (NYSE:AMTG) netted $192.46 based on dividends plus the mean of annual price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 50% less than the market as a whole.

PennyMac Mortgage netted $186.65, based on dividends plus a mean target price estimate by eight analysts less broker fees. The Beta number showed this estimate subject to volatility 50% less than the market as a whole.

Seadrill Limited netted $161.21 based on dividends plus the mean of annual price estimates from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 49% greater than the market as a whole.

Invesco Mortgage Capital netted $147.99 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 8% more than the market as a whole.

Hatteras Financial Corp (NYSE:HTS) netted $140.44 based on a mean target price estimate from ten analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 77% less than the market as a whole.

Dynex Capital, Inc. netted $133.14 based on dividends plus the mean of annual price estimates from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 15% less than the market as a whole.

Anworth Mortgage Asset netted $130.29 based on dividends plus mean target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 93% less than the market as a whole.

The average net gain in dividend and price was 18.5% on $1k invested in each of these ten dogs. This gain estimate was subject to average volatility 30% less than the market as a whole.

Actionable Conclusion (5): (Bear Alert) Analysts Forecast AT Russell DiviDog to Post Net Loss of 15.38% By August 29, 2015

The probable losing trade revealed by analysts reported by Thomson/First Call in Yahoo Finance for 2015:

Atlantic Power Corporation (NYSE:AT) was projected to lose $153.84 based on dividend and a mean target price estimate from four analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 44% less than the market as a whole.

Net gain/loss estimates above did not factor-in any tax problems resulting from return of capital or dividend distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

The stocks listed above were suggested only as decent starting points for your September Russell 1000 & 2000 index dog dividend stock purchase/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 www.dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.

Source: 3 Russell Dividend Dogs Roust 10% To 23% August Upsides