Tending The REIT Garden
Since the fall of 2011, reports in this series have used dog dividend methodology to uncover possible buy opportunities in each of the eight major market sectors listed by Yahoo Finance. This article responded to reader suggestions for a weekly dividend dog analysis of the Real Estate Investment Trust industry within the financials (Fins) sector.
This article surveyed market closing prices May 20 and used analyst mean target prices to forecast ten REIT stock upsides one year out. Yield (dividend/price) dog methodology was applied to select the top three high-yield stocks from each of ten categories: [1] mortgage finance, [2] residential, [3] retail, [4] mixed industrial & office, [5] specialty, [6] office, [7] diversified, [8] health, [9] lodging, and [10] industrial.
See Dow 30 article for explanation of the term "dogs" for stocks reported based on Michael B. O'Higgins' book "Beating The Dow" (HarperCollins, 1991), now named Dogs of the Dow. Below, Arnold's active REIT dog selections were disclosed step by step. Four actionable conclusions were drawn.
Actionable Conclusion (1) 10 Top REIT Dogs Pursue 15.79% To 42.20% Late-May 2016 Upsides
Charts above used 1-year median target price set by brokerage analysts multiplied by the number of shares in a $1k investment to compare ten Real Estate Investment Trust (REIT) stocks showing the highest upside price potential into 2016 out of 30 selected by yield. The number of analysts providing price estimates was noted after the name for each stock. Three to nine analysts was considered more accurate for a valid mean target price estimates.
Thirty For The Money
Bargain stocks to buy and hold for at least one year are but one result in this ongoing series that has reported (1) dividend yield; (2) price upside; and (3) net gain results based on analyst 1-year target projections.
Actionable Conclusion (2) Dog Metrics Gauged 30 REITs By Yield From 4.56% To 17.64%
Top 3 dividend-paying stocks from each of ten categories constituted the 30 REITs. Listed as of market closing prices May 20, they ranked themselves by yield as follows:
Top REIT stock by yield, Western Asset Mortgage Capital (WMC) [1] was the top mortgage and finance representative. Second place firm, ARMOUR Residential REIT (ARR) [2] represented residential REITs. Third by yield, Orchid Island Capital (ORC) [3] was the second mortgage and finance representative.
In fourth place, Resource Capital (RSO) [4] was the third mortgage and finance representative. Fifth by yield, Altisource Residential (RESI) [5] was the second residential REIT. Sixth from the top, Wheeler REIT (WHLR) [6] led retail REITs. In the seventh slot was the office REIT representative Government Properties (GOV) [7].
In eighth place was Select Income REIT (SIR) [8], the lone mixed industrial & office REITs representative. Ninth place went to Independence Realty Trust (IRT) [9], the third residential REIT. In tenth was Whitestone REIT (WSR) [10], which led the diversified REIT category, and completed the top ten May 20 REIT dog list by yield and unchanged since May 12.
To quantify the top dog rankings, analyst median price target estimates provided a "market sentiment" gauge of upside potential to supplement the simple high-yield "dog" metric used to dig out bargains.
Actionable Conclusion (3): Wall St. Wizards Guesstimated 15.62% Average Net Gains From Top 30 REIT Dogs By May 20, 2016
Top thirty REIT dogs were graphed below to show relative strengths by dividend and price as of May 20, 2015, along with dividend and price calculated from analyst mean price target estimates to the same date in 2016.
A hypothetical $1,000 investment in each equity was divided by the current share price to find the number of shares purchased. The number of shares 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 2016.
Historical prices and actual dividends paid from $1,000 invested in the highest-yielding stocks and the aggregate single share prices of those thirty stocks divided by 3 created data points for 2015. Projections based on estimated increases in dividend amounts from $1,000 invested in the thirty highest-yielding stocks and aggregate 1-year analyst target share prices from Yahoo Finance divided by 3 created the 2016 data points green for price and blue for dividends.
Analysts polled by Thomson/First Call as reported in Yahoo Finance projected a 12.38% lower dividend from $10k invested as $1k in each of the average stocks in this group while they projected aggregate single share price to rise 12% 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 have the best record for accurate estimates.
A beta (risk) ranking for each analyst-rated stock was provided in the beta column on the right side of 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's movement opposed to market direction.
Actionable Conclusion (4): Analysts Augured 10 Top REIT Dogs To Net 25.65% To 43.5% By May 20, 2016
Five of the top-yielding REIT dividend dogs were verified as being among the top ten gainers for the coming year based on analyst 1-year target prices. So this week the dog strategy as graded by Wall St. Wizards was 50% accurate.
Ten probable profit generating trades were revealed by Thompson/First Call analysts for 2016 per their target prices reported by Yahoo Finance:
Wheeler REIT was projected to net $498.35, based on dividends, plus a median target price estimate from two analysts, less broker fees. The Beta number showed this estimate subject to volatility 49% more than the market as a whole.
Resource Capital was projected to net $431.16, based on estimates from four analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 3% less than the market as a whole.
Investors Real Estate (IRET) was projected to net $397.79, based on dividends, plus a median target price estimate from two analysts, less broker fees. The Beta number showed this estimate subject to volatility 43% less than the market as a whole.
Ashford Hospitality (AHT) was projected to net $327.58, based on median target price estimates from nine analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 24% less than the market as a whole.
ARMOUR Residential REIT was projected to net $295.79, based on a median target price estimate from ten analysts, combined with projected annual dividends, less broker fees. The Beta number showed this estimate subject to volatility 44% less than the market as a whole.
Altisource Residential was projected to net $270.67, based on dividends, plus a median target price estimate from seven analysts, less broker fees. The Beta number showed this estimate subject to volatility 108% more than the market as a whole.
Monmouth Real Estate Investment (MNR) was projected to net $256.60, based on dividends, plus the median of annual price estimates from three analysts, less broker fees. The Beta number showed this estimate subject to volatility 50% less than the market as a whole.
Independence Realty Trust was projected to net $246.37, based on dividends, plus median target price estimate from five analysts, less broker fees. A Beta number was not available for IRT.
CorEnergy Infrastructure Trust (CORR) was projected to net $238.49, based on dividends, plus median target price estimate from four analysts, less broker fees. The Beta number showed this estimate subject to volatility 55% less than the market as a whole.
Agree Realty Corp. (ADC) was projected to net $234.76, based on estimates from five analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 6% less than the market as a whole.
Average net gain in dividend and price was 31.98% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 17% less than the market as a whole.
The net gain/loss 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/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.indexarb.com; www.dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.
