Dividend Dog Rules Declared
The "dog" moniker was earned by stocks exhibiting three traits: (1) paying reliable, repeating dividends, (2) whose prices fell to where (3) yield (dividend/price) grew higher than their peers (such as this REIT leader collection). Thus, the highest yielding stocks in any collection became known as "dogs."
Why Report 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 Found Top REITs by Yield
Top REIT dogs from each of ten categories were winnowed down from over 200 from here to make a weighted list of 40 that showed the biggest dividend yields as of June 8. The 10 types of REITS (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 Retail REITs Show Highest Yields; (2) Lodging, Office, and Mixed Industrial/Office REITs Show Lowest Yields of Ten Categories
In third pace, was New Residential Investment Corp (NYSE:NRZ) , leader of residential REITs. Fourth place was claimed by Anworth Mortgage Asset Corporation (NYSE:ANH), tops of the Diversified contingent .
The ninth place, was claimed by the office REIT rep, Government Properties (NYSE:GOV) . Finally, Mixed Industrial/Office REITs, led by Select Income REIT (NYSE:SIR) claimed the tenth place, to complete the top June 8 REIT dog category list by yield.
June REIT Dividend vs. Price Results Matched With The Dow Dogs
Graphs below showed relative strengths of the top ten REIT category dogs by yield as of market close 6/8/2016 with those of the Dow 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 dividend.
Actionable Conclusion: (3) REIT Leaders Mixed Down Into June
The REIT collection of top dividend payers by category mixed down through May. Dividend ands price both fell. Aggregate single share price of the 10 REITs dropped 5.5% after April/May and total dividend from $10k invested as $1k in each of the top ten REITs tumbled at a rate of 8.9%. Thus, the REITs mixed down, which narrowed further a window of investment opportunity (and risk) that had steadily opened since 2015.
Actionable Conclusion (4) Dow Dogs Also Mixed Down
Projected annual dividend from $10k invested as $1K in each of the top ten fell 1.3% after May. At the same time aggregate single share price dropped 1.8% to confirm the mix down. Dow dogs dropped in dividend and their aggregate share price fell after GE replaced Merck in the top ten after May.
Actionable Conclusion (5): Dow Dogs Remain Overbought
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) barely changed in the dither down movement.
Historically, 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 $292 or 75%.
As of January 15, however, the gap widened to $351 or 91.5 %. February moves reduced the gap to $254 or 62% February 16. March however, widened the chasm to $395 or 103%, close to the record last set in June. The April/May dither down triggered by bigger Boeing replacing P&G in the top ten put the gap at $370 or 98%. The June gap went to $362 or 97%.
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. The Dow top ten average price per dollar of annual dividend is $26.74.
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. The REIT top ten by category average price per dollar of annual dividend was $9.58.
Meanwhile, the REIT top ten by yield averaged a price per dollar of annual dividend of $7.71.
Actionable Conclusions (6) 10 Top REIT Dogs Seek 12.44% to 210.8% June, 2017 Upsides, (7) 5 See Downsides of 13% To 21.6%
Charts above used one 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 2017 out of 30 selected by yield. The number of analysts providing price estimates was noted after the name for each stock on the next chart below. Three to nine analysts have proved more accurate for a valid mean target price estimates.
Thirty Ready To Go
Top thirty REIT dogs were graphed below to show relative strengths by dividend and price as of June 8, 2016 along with dividend and price calculated from analyst mean price target estimates to the same date in 2017.
Actionable Conclusions: Wall St. Wizards Asserted (8) 11.04% Average Upside & (9) 18.88% Average Net Gain from Top 30 REIT Dogs
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 thirty stocks divided by 3 created 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.
Analysts polled by Thomson/First Call as reported in Yahoo Finance projected a 3.7% 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 4% 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 (10): Analysts Calculated 10 Top REIT Dogs Would Net 19.05% to 236.08% By June 6, 2017
Four 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 month the dog strategy was 40% accurate.
Ten probable profit generating trades were revealed by Thompson/First Call analysts for 2017 per their target prices reported by Yahoo Finance:
Gramercy Property Trust (NYSE:GPT) was projected to net $2,135.94 based on dividends plus a median target price estimate from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 47% less than the market as a whole.
Northstar Realty Financial (NYSE:NRF) was projected to net $434.41 based on the median estimate from four analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 56% more than the market as a whole.
Wheeler REIT was projected to net $415.06, based on dividends plus a median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 26% more than the market as a whole.
ZAIS Financial Corp (NYSE:ZFC) was projected to net $294.50 based on a median target price estimate from four analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 20% less than the market as a whole.
Anworth Mortgage Asset was projected to net $277.87, based on dividends plus median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 90% less than the market as a whole.
City Office REIT (NYSE:CIO) was projected to net $253.66 based on dividends plus the median of annual price estimates from six analysts less broker fees. A Beta number was not available for CIO
Jernigan Capital was projected to net $207.27 based on dividend plus a median target price estimate from two analysts less broker fees. A Beta number was not available for JCAP.
Communications Sales & Leasing, Inc. (NASDAQ:CSAL) was projected to net $194.39 based on dividends plus median target price estimate from seven analysts less broker fees. A Beta number was not available for CSAL.
Hannon Armstrong Sustainable Infrastructure Capital (NYSE:HASI) was projected to net $161.43 based on dividends plus a median target price estimate from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 10% more than the market as a whole.
Average net gain in dividend and price was 47.77% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 15% less than the market as a whole.
Actionable Conclusion (11): (Bear Alerts) Analysts Projected Five REIT Dogs With Net Losses of 9.6% To 15.14% By June, 2017
Five probable losing trades revealed by Thomson/First Call in Yahoo Finance in 2017 were:
CorEnergy Infrastructure was projected to lose $96.06 based on dividend and a median target price estimate from three analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 112% more than the market as a whole.
Liberty Property Trust (NYSE:LPT) was projected to lose $102.18 based on dividend and a median target price estimate from nine analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 10% less than the market as a whole.
Select Income REIT was projected to lose $107.30 based on dividend and a median target price estimate from three analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 21% less than the market as a whole.
Franklin Street Properties (NYSEMKT:FSP) was projected to lose $122.59 based on dividend and a median target price estimate from five analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 35% less than the market as a whole.
Government Properties was projected to lose $151.37 based on dividend and a median target price estimate from four analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 5% more than the market as a whole.
Average net loss in dividend and price was 11.59% on $5k invested as $1k in each of these five REIT dogs. This loss estimate was subject to average volatility 10% more than the market as a whole.
A Graphic Comparison of REIT Year To Date Price Histories Prompts the Query, "What's the Diff.?"
Past year near 29% upside price performance for GOV (Lowest of five REIT "losers") is surprisingly higher than the nearly 18%% upside YTD price history of this month's analysts upside REIT star stock, GPT. Upside momentum is evident at the top and the bottom of these Wall Street wizard prognostications.
Does this evidence correlate with Michael O'Higgins' "media index" admonition? O'Higgins advises investors to pay close attention to "magazine covers, news headlines, and ads placed by investment advisors, primarily in Barron's." He concludes that "you can make out like a bandit by acting the opposite way."
Dog Metrics Detected Bargains
Ten leading REIT equities, as noted above, were culled from here. Yield (dividend / price) methodology was applied to select the top three high yield stocks from each of ten categories:  mortgage and finance,  residential,  retail,  health,  office,  specialty,  mixed industrial & office,  diversified,  lodging,  industrial. One top dividend paying stock from each of those ten categories constituted the Leading REITS. Listed as of market close, June 8, the category leaders ranked themselves by yield as follows:
Actionable Conclusions: Analysts Guessed (12) 5 Lowest Priced of Ten Highest Yield Category Leading REITs Deliver 27.04% VS. (13) 14.01% Net Gains from All Ten As Of June 8, 2017
$5000 invested as $1k in each of the five Lowest priced stocks in the top ten REIT kennel by category were predicted by analyst 1 year targets to deliver 93.07% more net gain than $5,000 invested as $500 in each of all ten. The very lowest priced REIT dog, Wheeler REIT , was projected to deliver the greatest net gain of 41.51%.
Lowest priced five REIT dogs as of June 8 were: Wheeler REIT ; Anworth Mortgage Asset Corporation; Ashford Hospitality; Western Asset Mortgage Capital; New Senior Investment Group Inc, with prices ranging from $1.54 to $10.57.
The higher priced five REIT dogs for April 29 were: New Residential Investment Corp; Jernigan Capital; Government Properties; Select Income REIT; CorEnergy, whose prices ranged from $13.86 to $28.11.
Dog Metrics Also Discovered Bargains In Top Yield REITs
Top yielding dividend paying stocks from those ten categories constituted the top yield REITS list. Listed as of market close, June 8, the top yielders ranked themselves as follows:
Actionable Conclusions: Analysts Assert (14) 5 Lowest Priced of Ten Highest Yield REITs Deliver 19.92% VS. (15) 18.35% Net Gains from All Ten As Of June 8, 2017
$5000 invested as $1k in each of the five Lowest priced stocks in the top yield REIT kennel were predicted by analyst 1 year targets to deliver 8.57% more net gain than $5,000 invested as $500 in each of all ten. The fifth lowest priced REIT dog, Northstar Realty Financial Corp , was projected to deliver the greatest net gain of 43.44%.
Lowest priced five top yield REIT dogs as of June 6 were: Wheeler REIT; Anworth Mortgage Asset Corporation; New York Mortgage Trust (NASDAQ:NYMT); Western Asset Mortgage Capital; Orchid Island Capital (NYSE:ORC), with prices ranging from $1.54 to $10.43.
The higher priced five high yield REIT dogs for June 8 were: Northstar Realty Financial Corp.; New Residential Investment Corp; ZAIS Financial Corp.; Armour Residential REIT (NYSE:ARR); CorEnergy, whose prices ranged from $13.82 to $28.11.
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. It also works well for teasing bargains out of the list of top yielding REIT category leaders, or the top REITs by yield 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.
Annual Analyst Accuracy
You see below the one year result of ten analyst target estimates for REIT stocks from this article in 2015. These were applied to the "basic method" Michael B. O'Higgins employed for beating the Dow. The key shows: losses in a reddish tint; poor results tinted yellow; gains tinted green; no tint means no difference.
The "basic method" top ten annual analyst accuracy score for early June 2015 was one loss against three poor, four no diff's, and two gains.
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.
See my instablog for specific instructions about how to best use the dividend dog data featured in this article.--Fredrik Arnold
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The stocks listed above were suggested only as reference points for a REIT dog stock in early-June, 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.
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; GE; INTC; 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.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.