Top Financial Dogs Fly High In April

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Includes: AMTG, ARR, CIM, FSC, MITT, NCT, NRF, NRZ, NYMT, PMT, PNNT, RAS, RSO, TICC, TWO, WMC
by: Fredrik Arnold

Summary

Top ten financials flashed annual yield from 14.9% to 23.64% as of 4/7/16. Thirty showed yield from 14.16% to 24.52% as of market close. Tops was TICC.

CIM, AMTG, MITT, ARR, RSO, NRZ, PNNT, NYMT, WMC, and TICC, top ten financial dividend dogs by yield, charged bullishly after March, and so did Dow dogs.

Ten top financial upsides averaged 27.56% while net gains averaged 40.33% per analyst 1-year targets. Top thirty upsides averaged 14.6% with 23.6% gains.

Analyst targets forecast 1-year net gains ranging from 30.69% to 71.08% for NCT, TWO, PMT, FSC, MITT, RAS, RSO, NRZ, TICC, and NRF.

$5k invested in the lowest priced five of ten top yield financial sector dividend stocks in April showed 18.05% more net gain than $5k invested in all ten by 2017.

April Financial SML Dogs

Yield (dividend/price) results from here verified by Yahoo Finance were calculated as of April 7, 2016 for Small, Mid, and Large cap Financial stocks. Small cap firms were valued at $200M(illion) to $2B(illion); Mid cap firms were worth $2B to $10B; and Large caps were valued above $10B. Those yield results led to the actionable conclusions discussed below.

Fifty Financials For The 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; and (3) net gain results based on analyst 1-year 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 Measures Marked Financial Stocks by Yield

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Top ten financial sector dogs showing the biggest dividend yields by this screen as of April 7, 2016 represented five industries: (1) closed-end fund - debt [a business development company - BDC]; (2) mortgage investment; (3) residential REITs; (4) asset management; and (5) diversified REITs.

Top financial sector stock by yield, TICC Capital Corp. (NASDAQ:TICC) [1], was the BDC listed as closed-end fund - debt. 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, New York Mortgage Trust Inc. (NASDAQ:NYMT) [3] was the tops of five residential REITs. The other four residential REITs placed fifth through seventh, and ninth: New Residential Investment Corp. (NYSE:NRZ) [5]; Resource Capital (NYSE:RSO) [6]; ARMOUR Residential REIT (NYSE:ARR) [7]; and Apollo Residential Mortgage Inc. (NYSE:AMTG) [9].

An asset management representative placed fourth: PennantPark Investment (NASDAQ:PNNT) [4]. Finally, two diversified REITs placed eighth and tenth, AG Mortgage Investment Trust, Inc. (NYSE:MITT) [8] and Chimera Investment Corporation (NYSE:CIM) [10], to complete the top ten April financial chart by yield.

Top Financial Dividend vs. Price Results Resembled The Dow

Graphs below compared relative strengths of the top ten financial sector dogs by yield as of market close 4/7/2016 with those of the Dow Industrials index. Annual dividend history from $10,000 invested as $1k in each of the ten highest yielding stocks beside 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 Charged As (3) Did Dow Dogs

Financial sector dogs remained bullish as dividend fell while price increased after March. Dividend from $10k invested as $1k in each of the top ten dogs dropped 8% in April while total single share price increased 11% for the period, marking the bullish charge.

In like manner, Dow dogs stayed bullish as their dividend fell as price increased for the after March period. Projected annual dividend from $10k invested as $1k in each of the top ten dropped 2.2%. At the same time, aggregate single share price popped up 11% to make the Dow charging 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) increased.

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Actionable Conclusion (4): Dow Dogs Continued Overbought

The overhang was $320 or 90% to begin May, and soared to the new record $406 or 112% in June.

The Dow bubble deflated as DuPont (NYSE:DD) replaced IBM (NYSE:IBM) in the tenth slot of the top ten for July to peg the gap at $269 or 71%, then inflated again as IBM replaced Pfizer (NYSE:PFE) 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 Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM) pushed the gap to $334 or 85%.

November changed out McDonald's (NYSE:MCD) for Wal-Mart (NYSE:WMT), and General Electric (NYSE:GE) for Coca-Cola (NYSE: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 (NYSE:BA) replaced General Electric to push the overbought gap down to $215 or 53%. February moves put the gap at $208 or 48%. March put the chasm at $293 or 73%. April saw JPMorgan Chase (NYSE:JPM) replace Merck (NYSE:MRK) in the top ten to widen the gap to $394 or 102%.

This gap between high share price and low dividend per $1k invested defines the Dow overbought condition. Meaning these are low risk and low opportunity Dow dog stocks. The Dow top ten April average price per dollar of annual dividend is $26.09.

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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. The financial sector top ten average price per dollar of annual dividend is $6.06, just one quarter of the Dow price.

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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 Asserted 27.56% Average Price Upsides For Ten April 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 Predicted (6) A 14.6% Average Upside, and (7) A 2.6% Average 1-year Net Gain from Top 30 April Financial Dogs

Financial sector dogs were graphed below to show relative strengths by dividend and price as of April 7, 2016 and those projected by analyst mean price target estimates to the same date in 2017.

A hypothetical $1,000 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 $1,000 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 $1,000 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 12.4% 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 15% 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 Advised 30.69% to 71.08% Net Gains for Ten Financial Dividend Dogs As Of April 2017.

Four of the ten top dividend yielding financial 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 Thomson/First Call in Yahoo Finance for 2017:

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NorthStar Realty Finance (NYSE:NRF) was projected to net $710.77 based on dividends plus a mean target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 8% more than the market as a whole.

TICC Capital Corp. was projected to net $493.74 based on a median target price estimate from two analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 63% less than the market as a whole.

New Residential Investment Corp. was projected to net $420.55 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 was projected to net $370.11, based on dividend plus mean target price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 35% more than the market as a whole.

RAIT Financial Trust (NYSE:RAS) was projected to net $368.49 based on dividends plus a mean target price estimate from six analysts less broker fees. The Beta number showed this estimate subject to volatility 48% more than the market as a whole.

AG Mortgage Investment was projected to net $359.98 based on a median target price estimate from six analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 10% less than the market as a whole.

Fifth Street Finance (NYSE:FSC) was projected to net $341.33, based on dividends plus mean target price estimates from ten analysts less broker fees. The Beta number showed this estimate subject to volatility 3% opposite the market as a whole.

PennyMac Mortgage (NYSE:PMT) was projected to net $331.47 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 48% less than the market as a whole.

Two Harbors Investment (NYSE:TWO) was projected to net $329.74 based on a mean target price estimate from fifteen analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 8% less than the market as a whole.

Newcastle Investment (NYSE:NCT) was projected to net $306.88 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 64% more than the market as a whole.

The average net gain in dividend and price was estimated at 40.33% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 5% less than the market as a whole.

Dog Metrics Were Deployed To Extract 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 April 7, 2016 represented five industries: (1) closed-end fund - debt [a business development company -BDC]; (2) mortgage investment; (3) residential REITs; (4) asset management; and (5) diversified REITs.

Actionable Conclusions: (9) Analysts Assay 5 Lowest Priced of Ten Highest Yield Financial Dividend Dogs To Deliver 34.77% Vs. (10) 29.45% Net Gains by All Ten by April 7, 2017

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$5,000 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 18.05% more net gain than $5,000 invested as $0.5k in each of the ten. The second lowest priced financial dividend dog, TICC Capital Corp., was projected to deliver the best net gain of 49.37%.

Lowest priced five financial dividend dogs for April 7 were: New York Mortgage Trust Inc.; TICC Capital Corp.; PennantPark Investment; Western Asset Mortgage Capital Corp.; and Resource Capital, with prices ranging from $4.65 to $10.92.

Higher priced five financial dividend dogs for April 7 were: New Residential Investment Corp.; AG Mortgage Investment Trust, Inc.; Apollo Residential Mortgage Inc.; Chimera Investment Corporation; and ARMOUR Residential REIT Inc., whose prices ranged from $11.69 to $21.70.

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. It's 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.

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.

Eight of these financial sector dividend pups are listed as part of the 33 Dogs of the Week described on my Dividend Dog Catcher premium site. Click here to learn more and subscribe.

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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 dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.

Disclosure: I am/we are long ARR, FSC, CSCO, 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.