Is Northstar The Right REIT For Your January Dog Cache?

| About: NorthStar Realty (NRF)

Summary

Top Real Estate Investment Trusts representing 10 categories revealed yields from 9.82% to 24.22%. Top 30 REITs ranged from 6.29% to 24.22% at market close January 14.

Top yield REITs, WMC, NRF, CORR, ARR WHLR, CSAL, GOV, SNR, SIR, & AHT retreated since December as Dow dogs charged.

Ten REITs from eight of 10 categories per analyst 1-yr. targets averaged 73.77% upsides and 79.68% net gains and Northstar led.

Analysts projected 41.53% to 163.39% 1-yr. net gains for GEO, SNR, NYMT, CSAL, NRZ, AHT, WHLR, NCT, CORR, and lead dog, NRF.

Ten Real Estate Investment Trust (REIT) category leaders projected 23.11% more net gain from $5k invested in the lowest priced five than from $5K in all 10.

Why Not REITs?

Since the fall of 2011, this series of reports has used dog dividend methodology to uncover possible buy opportunities in each of nine major market sectors listed by Yahoo Finance. This article responded to reader suggestions for a dividend dog analysis of the Real Estate Investment Trust industry within the financials (Fins) sector.

This report was written to reveal bargain stocks to buy and hold one full year. See Dow 30 article for an 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. O'Higgins' system works to find bargains in any collection of dividend paying stocks.

Dog Metrics Sorted REITs by Yield

Click to enlarge

Top REIT dogs from each of 10 categories were winnowed out of 200 from here to make a weighted list of 40 that showed the biggest dividend yields as of January 14. The 10 types of REITS (in order by yield) and their percentage weight were: mortgage and finance (23%); residential (12%); retail (13%); office (7%); mixed industrial & office (4%); diversified (13%); health (6%); specialty (8%); lodging (9%); and industrial (5%).

Actionable Conclusions: (1) Mortgage/Finance, Residential, and Diversified, REITs Show Highest Yields; (2) Lodging, Healthcare, and Office, REITs Show Lowest Yields

Top REIT stock by yield, Western Asset Mortgage Capital (NYSE:WMC) [1], was the mortgage and finance representative. The second place firm, Northstar Realty Financial Corp. (NYSE:NRF) [2], represented diversified REITs. Third by yield was CorEnergy Infrastructure Trust (NYSE:CORR) [3], representing Specialty REITs.

In fourth pace, Armour Residential REIT (NYSE:ARR) [4] represented residential REITs. Fifth from the top was Wheeler REIT (NASDAQ:WHLR) [5], leader of retail REITs. In sixth place, Communications Sales & Leasing, Inc. (NASDAQ:CSAL) [6], led the industrial REITs.

The office REIT representative, Government Properties (NYSE:GOV) [7], placed seventh place. In eighth place was New Senior Investment Group Inc (NYSE:SNR) [8] which represented health care REITS. Mixed Industrial/Office REITs, led by Select Income REIT (NYSE:SIR) [9], captured ninth place. Finally, Ashford Hospitality (NYSE:AHT) [10], the lodging REIT representative, placed 10th to complete the top 10 January 14 REIT dog category list by yield.

REIT January Dividend vs. Price Results Contrasted With Those of The Dow Dogs

Graphs below compared relative strengths of the top 10 REIT industry dogs by yield as of market close 1/14/2016 with those of the Dow industrials index. Annual dividend history from $10,000 invested as $1k in each of the 10 highest yielding stocks along with the total single share price of those 10 stocks made the data points shown in green for price and blue for dividend.

Click to enlarge

Actionable Conclusion: (3) REIT Leaders Bailed Out In January

The REIT collection of top dividend payers by category got bearish and retreated sharply, as dividend soared and price plummeted entering January. Aggregated single share price of the 10 REITs fell 18.3% after December and total dividend from $10k invested as $1k in each of the top 10 REITs took off skyward at a rate of 11%. Thus, the REITs retreated and widened mightily, their window of investment opportunity (and risk).

Actionable Conclusion (4) Dow Dogs Charged

Dow dogs dropped in dividend and price rose after Boeing jumped into the top 10 as of/ 1/14. Projected annual dividend from $10k invested as $1k in each of the top 10 dropped nearly 1.5%. At the same time, aggregate single share price increased 8% to confirm the bullish charge.

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) widened.

[I invite you to sign on to my premium site, The Dividend Dog Catcher, to share my discussion about how the Dow (short of tossing out IBM) could, in one move, return to a normal balance where dividends from 10 $1k investments can again exceed the aggregate single share price of those top 10 stocks.]

Click to enlarge

Actionable Conclusion (5): Dow Dogs Remain Overbought

The overhang was $239 or 62% for February; widened to a record gap of $388 or 102% in March; shrank back to $291 or 79% for April; widened to $320 or 90% to begin May; soared to the new record $406 or 112% in June. The Dow bubble deflated as Dupont replaced IBM in the 10 slot of the top 10 for July to peg the gap at $269 or 71%, then inflated again as IBM replaced Pfizer to widen the gap to $331 or 85% for August. September brought some sanity back to the runaway Dow when the gap stood at $279 or 67%. October increases in price by CVX and XOM pushed the gap to $334 or 85%. November changed out MCD for WMT, and GE for KO. The resulting price over dividend gap went to $303 or 78%.

As of December 8, the gap stood at $292 or 75%. Come January 14, Boeing moved up to the 10 so price of the 10 Dow top dogs swelled, and dividend shrank, to push the overbought gap back up to $351 or 91.5%.

This gap between high share price and low dividend per $1k invested defines the Dow dogs' overbought condition. Meaning these are low risk and low opportunity Dow dog stocks.

Conversely, the REIT dog chart shows them to be much higher risk and higher yield. Furthermore, analysts see the REITs as far better price gain potential pups compared to those of the Dow this month.

Actionable Conclusion (6) 10 Top REIT Dogs Pursue 34.11% to 142.31% January 14, 2017 Upsides

Click to enlarge

Charts above used one-year median target price set by brokerage analysts multiplied by the number of shares in a $1k investment to compare 10 Real Estate Investment Trust (REIT) stocks showing the highest upside price potential into 2017 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 were considered more accurate for a valid mean target price estimates.

30 For Show

Actionable Conclusions: Wall St. Wizards Estimated (7) 35.7% Average Upside & (8) 35.8% Average Net Gain from Top 30 REIT Dogs

Top 30 REIT dogs were graphed above to show relative strengths by dividend and price as of January 14, 2016 along with dividend and price calculated from analyst mean price target estimates to the same date in 2017.

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 2017.

Historical prices and actual dividends paid from $1000 invested in the highest yielding stocks and the aggregate single share prices of those 30 stocks divided by 3 created data points for 2016. Projections based on estimated increases in dividend amounts from $1000 invested in the 30 highest yielding stocks and aggregate one-year analyst target share prices from Yahoo Finance divided by 3 created the 2017 data points green for price and blue for dividends.

Click to enlarge

Analysts polled by Thomson/First Call as reported in Yahoo Finance projected a 25.75% lower dividend from $10K invested as $1k in each of the average stocks in this group while aggregate single share price was predicted to rise nearly 29% 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 been known to provide more accurate estimates.

A beta (risk) ranking for each 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 stocks movement opposed to market direction.

Actionable Conclusion (9): Analysts Determined 10 Top REIT Dogs Would Net 25.7% to 58% By January 14, 2017

Six of the top yielding REIT dividend dogs were verified as being among the top 10 gainers for the coming year based on analyst 1-year target prices. So this time the dog strategy as 60% accurate.

Ten probable profit generating trades were revealed by Thompson/First Call analysts for 2017 per their target prices reported by Yahoo Finance:

Click to enlarge

Northstar Realty Financial was projected to net $1,633.85 based on estimates from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 8% more than the market as a whole.

CorEnergy (NYSE:CORR) was projected to net $1,180.41 based on dividends plus the median of annual price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 46% more than the market as a whole.

Newcastle Investment Corp (NYSE:NCT) was projected to net $803.17, based on median target price estimates from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 64% more than the market as a whole.

Wheeler REIT (NASDAQ:WHLR) was projected to net $774.70, based on dividends plus a median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 10% less than the market as a whole.

Ashford Hospitality was projected to net $714.15 based on dividends plus a median target price estimate from eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 52% more than the market as a whole.

New Residential Investment (NYSE:NRZ) was projected to net $697.04 based on estimates from eleven analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 28% more than the market as a whole.

Communications Sales & Leasing, Inc. was projected to net $654.67 based on dividends plus median target price estimate from seven analysts less broker fees. A Beta number was not available for CSAL.

New York Mortgage Trust (NASDAQ:NYMT) was projected to net $563.16, based on dividends plus median target price estimate from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 12% more than the market as a whole.

New Senior Investment Group Inc was projected to net $531.38 based on a median target price estimate from three analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 43% less than the market as a whole.

The Geo Group, Inc (NYSE:GEO) was projected to net $415.30 based on dividend plus a median target price estimate from four analysts less broker fees. The Beta number showed this estimate subject to volatility 21% more than the market as a whole.

Average net gain in dividend and price was 79.68% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 8% more than the market as a whole.

Dog Metrics Extracted Bargains

Ten leading REIT equities were culled by yield from here. Yield (dividend / price) methodology was applied to select the top three high yield stocks from each of 10 categories: [1] mortgage and finance, [2] residential, [3] retail, [4] health, [5] office, [6] specialty, [7] mixed industrial & office, [8] diversified, [9] lodging, [10] industrial. One top dividend paying stock from each of those 10 categories constituted the Leading REITS. Listed as of market close, January 14, the category leaders ranked themselves by yield as follows:

Click to enlarge

Actionable Conclusions: Analysts Allege (10) 5 Lowest Priced of Top 10 Highest Yield Category Leading REITs Deliver 82.06% Vs. (11) 66.65% Net Gains from All 10 As Of January 14, 2017

Click to enlarge

$5000 invested as $1k in each of the five lowest priced stocks in the top ten REIT kennel by yield were predicted by analyst 1-year targets to deliver 23.1% more net gain than $5,000 invested as $500 in each of all 10. The fifth lowest priced REIT dog, Northstar Realty Financial Corp, was projected to deliver the greatest net gain of 163.38%.

Lowest priced five REIT dogs as of January 14 were: Wheeler REIT; Ashford Hospitality Trust; New Senior Investment Group Inc; Western Asset Mortgage Capital (NYSE:WMC); Northstar Realty Financial Corp, with prices ranging from $1.51 to $13.00.

The higher priced five REIT dogs for January 14 were: Government Properties (NYSE:GOV); CorEnergy; Communications Sales & Leasing, Inc.; Select Income REIT; Armour Residential REIT, whose prices ranged from $13.84 to $19.83.

This distinction between five low priced dividend dogs and the general field of 10 reflects the "basic method" Michael B. O'Higgins employed for beating the Dow. It also works well for teasing bargains out of this list of top yielding REIT category leaders, as you see.

The added scale of projected gains based on analyst targets contributed a unique element of "market sentiment" gauging upside potential. It provided a here and now equivalent of waiting a year to find out what might happen in the market. Its also the work analysts got paid big bucks to do.

A caution is advised, however, as analysts are historically 20% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of the change.

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 reference points for a REIT dog stock in mid-January, 2015. These were not recommendations.

See my instablog for specific instructions about how to best use the dividend dog data featured in this article.

Gains/declines as reported do not factor in any tax problems resulting from dividend, profit, or return of capital distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

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.

Disclosure: I am/we are long ARR, PFE, GE, VZ.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.