Investing in Mid-Cap Financials for Strong Performance

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 |  Includes: ALL, AVB, BX, GGP, HCP, MMC, MTB, NLY, PSA, VNO
by: Insider Monkey

In a previous article, we showed that most mega-cap financials didn’t have high dividend yields attractive enough for dividend investors. Although high dividend financial stocks have performed better than low dividend financial stocks in the last 52-week period, dividend lovers may not find these large-cap high dividend stocks appealing.

We believe there are better dividend opportunities within financial sector. Mid-cap financial stocks have higher dividend yields than large-cap financial stocks. We prefer high dividend stocks since they generally perform better and increase their dividend payments over 5-10 years. We also believe investors should consider picking higher dividend stocks when they seek protection against inflation in the current monetary environment.

We compiled a list of 30 Financial Stocks (the sector classifications are sourced from Finviz) that have a market cap between $10B and $20B and ranked them based on their 12-month dividend yields. The top and bottom halves and their performances are shown below:

HIGHER DIVIDEND YIELDS

Dividend Yield

YTD Return

52-week Return

Annaly Capital Management Inc.

NLY

11.1%

0.50%

32.4%

HCP Inc.

HCP

5.1%

2.18%

26.3%

The Blackstone Group

BX

4.3%

20.45%

65.0%

M&T Bank Corp.

MTB

3.2%

1.07%

10.9%

General Growth Properties

GGP

3.0%

3.45%

53.6%

Vornado Realty Trust

VNO

2.8%

15.17%

32.2%

AVALONBAY Communities

AVB

2.8%

11.91%

39.6%

Public Storage

PSA

2.8%

12.95%

32.1%

Marsh & McLennan Companies

MMC

2.8%

11.17%

45.0%

The Allstate Corporation

ALL

2.6%

-0.79%

8.2%

BB & T Corp.

BBT

2.4%

0.46%

-11.8%

Northern Trust Corporation

NTRS

2.3%

-11.94%

-2.0%

Boston Properties Inc.

BXP

1.9%

20.88%

44.0%

Equity Residential

EQR

1.9%

14.41%

42.8%

Invesco Ltd.

IVZ

1.9%

1.9%

34.1%

AVERAGE

6.9%

30.2%

Click to enlarge

LOWER DIVIDEND YIELDS

Dividend Yield

YTD Return

52-week Return

Weyerhaeuser Co.

WY

1.9%

14.23%

41.3%

Progressive Corp.

PGR

1.9%

10.43%

12.8%

T.Rowe Price Group

TROW

1.8%

-3.58%

29.3%

Principal Financial Group

PFG

1.8%

-4.21%

22.8%

The Chubb Corporation

CB

1.7%

9.39%

34.4%

CME Group Inc.

CME

1.7%

-7.78%

-7.0%

Ameriprise Financial Inc.

AMP

1.3%

6.74%

58.7%

Hartford Financial Services

HIG

0.9%

0.53%

12.0%

Aon Corporation

AON

0.9%

13.02%

34.6%

TD AMERITRADE

AMTD

0.7%

9.52%

18.1%

Fifth Third Bancorp

FITB

0.7%

-15.60%

-0.8%

Loews Corporation

L

0.6%

7.00%

33.4%

Discover Financial Services

DFS

0.5%

32.20%

86.8%

Host Hotels & Resorts

HST

0.3%

-5.32%

23.9%

SunTrust Banks Inc.

STI

0.1%

-7.80%

7.3%

AVERAGE

3.9%

27.2%

Click to enlarge


In the last 52-week period, the average return of the high dividend yielding mid-cap financial stocks was 30.2%. The second group of 15 stocks with lower dividend yields underperformed the stocks with higher dividend yields in the same period, returning 27.2% on average. The performance of the first group was still better since the beginning of the year. The average YTD return of the first group was 6.9% vs. 3.9% for the second group. As we expected; high dividend mid-cap financial stocks have given more attractive dividend yields, outperforming low dividend mid-cap financial stocks recently.

Top ten mid-cap financial stocks with the highest dividend yields are as follows:

1. Annaly Capital Management, Inc. (NYSE:NLY): Annaly Capital Management Inc. is a portfolio management company specialized in mortgage-backed securities. NLY has a high dividend yield of 11.1% and returned 32.4% during the past 12 months. NLY recently traded at $18.01 and gained 0.5% since the beginning of this year. The stock has a market cap of $14.65B and P/E ratio of 7.21. Both James Melcher’s Balestra and Andy Redleaf’s Whitebox Advisors hold more than $50 Million of NLY.

2. HCP Inc. (NYSE:HCP): HCP Inc. is a real estate investment trust specialized in healthcare real estate. HCP has a high dividend yield of 5.1% and returned 26.3% during the past 12 months. HCP recently traded at $36.86 and gained 2.18% in 2011. The stock has a market cap of $14.97B and P/E ratio of 19.39. D.E.Shaw had more than $100M in HCP. Jim Simons’ Renaissance Technologies and Phill Gross‘ Adage Capital are also among HCP investors.

3. The Blackstone Group (NYSE:BX): The Blackstone Group is an asset management company specializing in alternative asset classes such as private equity and real estate. BX has a 4.3% dividend yield and returned 65.0% during the past 12 months. The stock also performed well in 2011, returning 20.45% year-to-date. BX recently traded at $16.60 and has a market cap of $18.73B. Paul Ruddock’s Lansdowne Partners, Leon Cooperman’s Omega Advisors and Robert Caruso’s Select Equity are among the hedge funds that are bullish about BX.

4. M&T Bank Corp. (NYSE:MTB): M&T Bank Corp. is the holding company of M&T Bank. MTB has a 3.2% dividend yield and returned 10.9% during the past 12 months. MTB recently traded at $87.41 and gained 1.07% since the beginning of this year. The stock has a market cap of $10.56B and P/E Ratio of 14.29. Warren Buffett had the largest position in MTB among the 300+ funds we are tracking. Buffet had more than $450M in MTB.

5. General Growth Properties (NYSE:GGP): General Growth Properties. is a real estate investment trust specializing in shopping malls. GGP recently traded at $15.88 and has a 3.0% dividend yield. GGP returned 53.6% during the past 12 months, while it gained 3.45% year-to-date. The stock has a market cap of $15.83B. Bruce Berkowitz’s Fairholme and Bill Ackman’s Pershing Square made more than $1 Billion in GGP each by investing in GGP when the stock was trading below $1 in 2009.

6. Vornado Realty Trust (NYSE:VNO): Vornado Realty Trust is a real estate investment trust specializing in commercial real estate. VNO has a 2.8% dividend yield and returned 32.2% during the past 12 months. The stock also performed well in 2011, returning 15.17% year-to-date. VNO recently traded at $94.99. The stock has a market cap of $17.50B and P/E Ratio of 22.04. Martin Whitman’s Third Avenue and Murray Stahl’s Horizon Asset Management are among VNO investors.

7. Avalonbay Communities (NYSE:AVB): Avalonbay Communities is a real estate investment trust specializing in residential real estate in the United States. AVB has a 2.8% dividend yield and returned 39.6% during the past 12 months. The stock also performed well since the beginning of this year, gaining 11.91% year-to-date. AVB recently traded at $126.86 and has a market cap of $11.08B. D.E.Shaw had more than $50M in AVB. Ken Griffin’s Citadel Investment and Phill Gross‘ Adage Capital also among AVB investors.

8. Public Storage (NYSE:PSA): Public Storage is a real estate investment trust specializing in self-storage properties. PSA recently traded at $113.83 and has a 2.8% dividend yield. PSA returned 32.1% during the past 12 months, while it gained 12.95% since the beginning of the year. The stock has a market cap of $19.42B and P/E Ratio of 37.78. Robert Caruso’s Select Equity, Jim Simons’ Renaissance Technologies and Phill Gross‘ Adage Capital hold PSA in their portfolios.

9. Marsh & McLennan Companies (NYSE:MMC): Marsh & McLennn Companies is a financial corportion providing risk management; strategy consulting and insurance brokerage services worldwide. MMC has a 2.8% dividend yield and returned 45.0% during the past 12 months. The stock also performed well since the beginning of this year, gaining 11.17% year-to-date. MMC recently traded at $29.91. The stock has a market cap of $16.41B and P/E Ratio of 17.73. Andreas Halvorsen’s Viking Global holds more than $200M in MMC. Ken Griffin’s Citadel Investment also holds more than $110M in MMC.

10. The Allstate Corporation (NYSE:ALL): The Allstate Corporation is an insurance company providing property and casualty insurance services. ALL has a 2.6% dividend yield and returned 8.2% during the past 12 months. ALL recently traded at $18.01 and lost 0.79% since the beginning of this year. The stock has a market cap of $16.32B and P/E ratio of 12.72. Harris Associates, Clint Carlson and Ron Gutfleish are among ALL investors.

We believe a portfolio that is long in top 15 high dividend stocks and that is short in 15 low dividend financial stocks will be able to produce positive returns during the next 12-24 months. The returns could be in double digits if we experience a sharp downturn in the stock market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.