Financial Dogs Flash Flying Yields From Flagging Prices For February

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Includes: AMTG, ARR, CG, CSAL, FSC, IEP, NRF, NRZ, NYMT, PMT, PNNT, PSEC, RAS, RSO, TICC, WMC
by: Fredrik Arnold

Summary

Top ten financials flashed annual yield from 18% to 31%. Thirty showed yield from 12.64% to 31% as of February 10 market close. Tops was NRF.

RAS, NRZ, CG, AMTG, NYMT, ARR, PNNT, TICC, WMC, & NRF top ten financial dividend dogs by yield, retreated after January as Dow dogs mixed up.

Ten top financial upsides averaged 63.96% while net gains averaged 79.55% as of February 10 analyst 1yr. targets. Top thirty upsides averaged 44.14% with 44.51 gains.

Analyst targets forecast 1yr. net gains ranging from 65.97% to 92.95% for NYMT, FSC, RSO, NRZ, PSEC, IEP, PMT, TICC, CSAL, & RAS.

$5k invested in the lowest priced five of ten top yield financial sector dividend stocks in February showed 13.18% more net gain than $5k invested in all ten.

Financial SML Dogs For February

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of February 10, 2016 for Small, Mid, & Large cap Financial stocks. 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. Those yield results led to the actionable conclusions discussed below.

Fifty Financials For 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.

This article was intended to reveal bargain stocks to buy and hold up to one year. 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. 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, as desired.

Dog Metrics Measured Financial Stocks by Yield

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Top ten financial sector dogs showing the biggest dividend yields by this screen as of February 10, 2016 represented six industries: (1) retail REITs; (2) mortgage investment; (3) closed end fund - debt [a business development company -BDC]; (4) asset management; (5) residential REITs; (6) diversified REITs.

Top financial sector stock by yield, Northstar Realty Financial Corp (NYSE:NRF) [1] was the lone retail REIT. In second place, Western Asset Mortgage Capital Corp (NYSE:WMC) (2) was listed as the lone Mortgage Investment industry firm. WMC, however, describes itself as a REIT. In third place, TICC Capital Corp (NASDAQ:TICC) [3], was the BDC listed a closed end fund - debt.

Two asset management firm representatives placed fourth, and eighth: Pennantpark Investment Corp (NASDAQ:PNNT) [4], and The Carlyle Group (NASDAQ:CG) [8].

Armour Residential REIT (NYSE:ARR) [5] was the tops of four residential REITs. The other three residential REITs placed sixth, seventh, and ninth: New York Mortgage Trust Inc (NASDAQ:NYMT) [6]; Apollo Residential Mortgage Inc, (NYSE:AMTG) [7]; New Residential Investment Corp (NYSE:NRZ) [8].

Finally, one diversified REIT placed tenth, RAIT Financial Trust (NYSE:RAS) [10] to complete the top ten February financial dogs by yield.

Top Financial Dividend vs. Price Results Contrasted To Those of The Dow Dogs

Graphs below compared relative strengths of the top ten financial sector dogs by yield as of market close 2/10/2016 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.

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Actionable Conclusions: (2) Financial Dogs Retreated As (3) Dow Dogs Mixed Up

Financial sector dogs fell back bearishly as dividend increased while price fell again after January. Dividend from $10k invested as $1k in each of the top ten dogs soared 12.2% into February while total single share price tumbled 1.85% for the period, signaling the bearish retreat.

In contrast, Dow dogs mixed up as their dividend jumped along with price for the period. Projected annual dividend from $10k invested as $1K in each of the top ten rose 6.7%. At the same time, aggregate single share price popped 3.3% to confirm the Dow mix down move.

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) changed a little to the lesser side.

[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 ten stocks.]

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Actionable Conclusion (4): Dow Dogs Stay Overbought

The overhang was $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 ten slot of the top ten 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 4 the gap stood at $302 or 78%. Come January 12, prices of the ten Dow top dogs fell, and dividends rose, as Boeing replaced General Electric to push the overbought gap down to $215 or 53%. February moves put the gap at $208 or 48%.

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

Conversely, the financial dog chart shows them to be much higher risk and higher yield. Furthermore, the financials show greater likely price gains at far higher risk compared to the Dow this month.

Wall Street Wizard Weightings

One-year mean target price set by brokerage analysts multiplied by the number of shares in a $1k investment revealed ten 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 have usually provided the most accurate mean target price estimates.

Actionable Conclusion: (5) Analysts Estimated 63.96% Average Price Upsides For Ten February Financial Dogs

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To quantify top dog rankings, analyst price target estimates provided a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metrics, analyst target estimates were another tool to dig out bargains.

Actionable Conclusions: Wall St. Wizards Wanted (6) A 44.14% Average Upside; (7) A 44.51% Average 1 yr. Net Gain from Top 30 February Financial Dogs

Financial sector dogs were graphed below to show relative strengths by dividend and price as of February 10, 2016 and those projected by 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 dividend amounts to find the dividend return. Thereafter the analyst median target price was used to gauge the stock upside to 2017.

Historic prices and actual dividends paid from $1000 invested in each of the thirty highest yielding stocks and the aggregate single share prices of those thirty stocks divided by 3 created the data points for 2016. Projections based on estimated increases in dividend amounts from $1000 invested in the thirty 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.

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Analyst targets reported by Yahoo! Finance forecast 29.5% less dividend from $10K invested as $1k in ten dogs in this group while aggregate single share price for those ten was projected to increase by over 45.16% 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 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 opposite of market direction.

Actionable Conclusion (8): Analysts Asserted 65.97% to 102.92% Net Gains for Ten Financial Dividend Dogs Into February 2017.

Four of the ten top dividend yielding healthcare 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 40% accurate.

Ten probable profit generating trades were revealed by Thompson/First Call in Yahoo Finance for 2017:

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RAIT Financial Trust was projected to net $929.49 based on dividends plus a mean target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 35% more than the market as a whole.

Communications Sales & Leasing, Inc. (NASDAQ:CSAL) was projected to net $913.50 based on dividends plus a mean target price estimate from seven analysts less broker fees. A beta number was not available for CSAL.

TICC Capital Corp. was projected to net $868.66 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 55% less than the market as a whole.

Pennymac Mortgage (NYSE:PMT) was projected to net $839.31 based on a median target price estimate from nine analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 50% less than the market as a whole.

Icahn Enterprises L.P. (NASDAQ:IEP) was projected to net $792.08 based on a mean target price estimate from two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 60% more than the market as a whole.

Prospect Capital Corporation (NASDAQ:PSEC) was projected to net $783.44 based on a median target price estimate from nine analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 61% less than the market as a whole.

New Residential Investment Corp was projected to net $762.22 based on dividends plus mean target price estimates by eleven analysts less broker fees. The Beta number showed this estimate subject to volatility 28% more than the market as a whole.

Resource Capital (NYSE:RSO) was projected to net $706.71, based on dividend plus mean target price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 40% more than the market as a whole.

Fifth Street Finance (NASDAQ:FSC) was projected to net $699.67, based on dividends plus mean target price estimates from twelve analysts less broker fees. The Beta number showed this estimate subject to volatility 3% opposite the market as a whole.

New York Mortgage Trust was projected to net $659.74, based on dividends plus mean target price estimates from seven analysts less broker fees. The Beta number showed this estimate subject to volatility 11% more than the market as a whole.

The average net gain in dividend and price was estimated at 79.55% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 11% less than the market as a whole.

Dog Metrics Extracted Bargains

Ten small, mid, and large cap financial equities were culled from over 70 choices from here. Yield (dividend / price) results verified by Yahoo Finance did the ranking.

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As previously noted, top yield financial sector dogs as of February 10, 2016 represented six industries: (1) retail REITs; (2) mortgage investment; (3) closed end fund - debt [a business development company -BDC]; (4) asset management; (5) residential REITs; (6) diversified REITs.

Actionable Conclusions: (9) Analysts Assert 5 Lowest Priced of Ten Highest Yield Financial Dividend Dogs Deliver 73.58% VS. (10) 65.01% Net Gains by All Ten by February 10, 2017

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$5000 invested as $1k in each of the five Lowest priced stocks in the top ten financial dividend kennel by yield were predicted by analyst 1 year targets to deliver 13.18% more net gain than $5,000 invested as $.5k in each of the ten. The very lowest priced financial dividend dog, RAIT Financial Trust , was projected to deliver the best net gain of 92.95%.

Lowest priced five financial dividend dogs for February 10 were: RAIT Financial Trust; New York Mortgage Trust Inc.; TICC Capital Corp; Pennantpark Investment Corp; Northstar Realty Financial Corp., with prices ranging from $1,98 to $9.58.

Higher priced five financial dividend dogs for February 10 were: Western Asset Mortgage Capital Corp; Apollo Residential Mortgage Inc.; New Residential Investment Corp.; The Carlyle Group; ARMOUR Residential REIT Inc., whose prices ranged from $9.58 to $18.17.

This distinction between five low priced dividend dogs and the general field of ten reflects the "basic method" Michael B. O'Higgins employed for beating the Dow. The same technique, you now see, can also be used to find the more rewarding dogs in the Financial sector.

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 possible reference points for a small, mid, and large cap financial equities dog dividend stock investment research process in mid-February, 2016. These were not recommendations.

See my instablog for specific instructions about how to best apply the dividend dog data featured in this article. --Fredrik Arnold

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.

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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, FSC, INTC, PFE, 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.