Real Estate Is Bigger Than REITs! Here's More.

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Includes: AHT, AMTG, ANH, BA, CESTY, CIM, CSAL, DX, FXTGY, GE, GEO, GOV, INTC, JPM, LHO, LMRK, MRK, NRF, NRZ, NYMT, OHI, ORC, PG, SNH
by: Fredrik Arnold

Summary

Real estate yields for Leaders of all nine component industries plus one runner-up averaged 11.67% 7/26/16. Lowest yield of 45 components (5 per industry) was 4.66%. Top yielder was CESTY.

Top ten real estate industry leaders by yield, GEO, GOV, CSAL, AHT, FXTGY, NRF, NYMT, AMTG, ORC, & CESTY, charged bullishly after June to match Dow dog bravado.

Ten top real estate industry leader upsides averaged 8.88% while net gains averaged 18.4% per analyst 1yr. targets. Top thirty upsides averaged -0.42% with 8.6% net gains.

Analyst targets forecast top ten 1yr. gains ranging from 12.96% to 27.38% from DX, OHI, GEO, AMTG, ORC, CESTY, NRZ, LMRK, ANH, & NRF tops. Four cast average 11.23% losses.

$5k invested in the lowest priced five of 9+1 top yield real estate leader stocks were predicted to show 64.41% more gain than $5k invested in all ten come 2017.

Real Estate Industry Leading July Dogs

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of July 26, 2016 for Small, Mid, & Large cap Real Estate Industry Leaders 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.

Dividend Dogs Rule

The "dog" moniker was earned in three steps: (1) any stock paying a reliable, repeating dividend (2) whose price fell to a point where its yield (dividend/price) (3) grew higher than its peers (such as this Industrials collection), is so tagged. Thus, the highest yielding stocks in any collection became known as "dogs."

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Fifty REITs 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; (3) net gain results based on analyst 1 yr. target projections.

The series was recently revised to report on 11 sectors as defined by Morningstar and tracked here: Basic Materials, Communication Services, Consumer Cyclical, Consumer Defensive, Energy, Financial Services, Healthcare, Industrials, Real Estate, Technology, and Utilities.

This article 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 Tracked Leading Real Estate Stocks by Yield In 9 Industries

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Top nine plus one runner-up leading dogs July 26, 2016 represented nine real estate component industries: (1) general; (2) services; (3) diversified; (4) residential; (5) hotel & motel; (6) office; (7) healthcare; (8) industrial; (9) retail.

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One runner-up (second highest yield) residential stock was selected to make a top ten list.

Top real estate sector stock by yield represented the general RE industry, Chinese Estates Holdings (OTCPK:CESTY) [1]. The diversified RE leader placed second, Orchid Island Capital (NYSE:ORC) [2]. Third and fourth places were secured by the residential RE leader, New York Mortgage Trust (NASDAQ:NYMT) (3) and runner-up, Apollo Residential (NYSE:AMTG) [4]. Fifth place went to retail RE industry leader, NorthStar Realty Finance (NYSE:NRF) [5].

RE Services top dog placed sixth, Foxtons Group (OTCPK:FXTGY) [6]. In seventh place was hotel & motel RE leader by yield, Ashford Hospitality Trust (NYSE:AHT) [7]. Eighth place went to the industrial RE top dog, Communications Sales & Leasing (NASDAQ:CSAL) [8]. The last two slots in the top ten by yield were claimed by the office RE leader and the healthcare facility RE leader, Government Properties Investment Trust (NYSE:GOV) [9], and The GEO Group (NYSE:GEO) [10]. These completed the top ten July real estate sector leader board by yield.

Real Estate Leader Dividend vs. Price Results Versus Dow Dogs

Graphs below compared relative strengths of the top ten real estate sector 9 industry leader dogs plus one by yield as of market close 7/26/2016 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) Real Estate Leader Dogs And (3) Dow Dogs Kept Charging.

Real estate sector dogs charged as dividend fell while price soared through June. Dividend from $10k invested as $1k in each of the top nine plus one RE Leader dogs dropped 2.8% through June/July while total single share price took off skyward 55.25% for the period, setting the sector charge.

In like manner, Dow dogs charged as their dividend from $1k in each of ten dogs decreased while the aggregate single share price of those ten stocks went up the post-May period. Projected annual dividend from $10k invested as $1K in each of the top ten dropped 1.7%. At the same time, aggregate single share price rose 3.2% to make the Dow more 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) went to a new level.

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Actionable Conclusion (4): Dow Dogs Expanded Overbought

The overhang was $331 or 85% for August, 2015. September brought some sanity back to the runaway Dow when the gap stood at $279 or 67%. October pushed the gap to $334 or 85%.

November price over dividend gap went to $303 or 78%. As of December 4 the gap stood at $302 or 78%.

Come January 12, 2016, prices of the ten Dow top dogs fell, and dividends rose, as big Boeing (NYSE:BA) replaced little General Electric (NYSE:GE) 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 the gap widen to $394 or 102%. May's dither down was triggered by Intel (NASDAQ:INTC) and Merck (NYSE:MRK) returning to the top ten in place of JPMorgan Chase (NYSE:JPM) and Proctor & Gamble (NYSE:PG). So, the overbought gap shrank to $364 or 95%. July changed all that as a price rally powered the Dow price to exceed dividend by $438 or 122%.

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 July average price per dollar of annual dividend hit $27.75.

Conversely, the real estate dog chart shows them to be much higher risk and higher yield. Furthermore, the realities show greater likely price gains at far higher risk compared to the Dow this month. The real estate sector leader top ten average price per dollar of annual dividend is $8.19, about one third of the Dow price.

Wall Street Wizard Reckonings

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 on the second list below. Three to nine analysts have usually provided the most accurate mean target price estimates.

Actionable Conclusion: (5) Analysts Estimated 8.88% Average Price Upsides For Ten July Real Estate Sector Leader Dogs, & (6) A 30.16% Downside for The Lowest One (Of Ten).

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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. Analysts Alleged (7) A -0.42% Average Upside, & (8) A 8.64% Average 1 yr. Net Gain from Top 30 July Real Estate Leaders

Real estate sector industry leader dogs were graphed below to show relative strengths by dividend and price as of July 26, 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 1.11% more dividend from $10K invested as $1k in ten dogs in this group while aggregate single share price for those ten was projected to decrease by 0.8% 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 were 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 (9): Analysts Advocated 13.46% to 35.29% Net Gains for Nine + One Real Estate Leader Dividend Dogs As Of July, 2017.

Seven of the ten top dividend yielding financial services dogs was 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 real estate sector leaders as graded by Wall St. wizards was 70% accurate.

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

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NorthStar Realty Finance was projected to net $273.84 based on dividends plus a median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 65% more than the market as a whole.

Anworth Mortgage Asset (NYSE:ANH) was projected to net $242.94 based on dividends plus median target price estimates by three analysts less broker fees. The Beta number showed this estimate subject to volatility 91% less than the market as a whole.

Landmark Infrastructure (NASDAQ:LMRK) was projected to net $237.82 based on a median target price estimate from five analysts combined with projected annual dividend less broker fees. No Beta number was available for LMRK.

New Residential Investment (NYSE:NRZ) was projected to net $227.41 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 3% less than the market as a whole.

Chinese Estates Holdings was projected to net $162.43, based on dividends alone less broker fees. No Beta number was available for CESTY.

Orchid Island Capital was projected to net $150.82 based on dividends plus median target price estimates from three analysts less broker fees. The Beta number showed this estimate subject to volatility 65% more than the market as a whole.

Apollo Residential was projected to net $148.01 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 was projected to net $134.62 based on dividends plus a median target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 13% more than the market as a whole.

Omega Healthcare (NYSE:OHI) was projected to net $133.85 based on a median target price estimate from eight analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 56% less than the market as a whole.

Dynex Capital (NYSE:DX) was projected to net $129.56 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 13% less than the market as a whole.

The average net gain in dividend and price was estimated at 18.41% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 20% less than the market as a whole.

Actionable Conclusion (10): (Bear Alerts) Analysts Estimated Four Real Estate Sector Leader Dogs To Average A Net Loss of 11.23% By July, 2017

Four probable losing trades revealed by Thomson/First Call in Yahoo Finance by 2017 were:

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LaSalle Hotel Properties (NYSE:LHO) was projected to lose $44.75 based on dividend and a median target price estimate from thirteen analysts including $20 of broker fees. The Beta number showed this estimate subject to volatility 4% less than the market as a whole.

Chimera Investment (NYSE:CIM) was projected to lose $51.53 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 33% less than the market as a whole.

Senior Housing Properties (NYSE:SNH) was projected to lose $106.41 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 54% less than the market as a whole.

Government Properties Investment Trust was projected to lose $246.54 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 8% more than the market as a whole.

Average net loss was estimated at 18.41% on $4k invested as $1k in each of these four dogs. This loss estimate was subject to average volatility 21% less than the market as a whole.

A Real Estate Industry Leader Year To Date Price Comparison Shows the Big Loser Winning

This side by side price performance compares the Broker deemed real estate "loser" in red, Government Properties Investment Trust upward price history contrasts significantly to the lower trajectory for this month's Broker selected real estate star stock, Landmark Infrastructure. Price momentum contradicts these broker predictions.

Dog Metrics Extracted More Bargains

Nine plus one runner-up small, mid, and large cap real estate sector industry leaders equities were culled from 45 choices. Yield (dividend / price) results verified by Yahoo Finance did the ranking.

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As previously noted, top nine plus one runner-up real estate sector leader dogs showing the biggest dividend yields as of market close July 26, 2016 represented nine RE industries: (1) general; (2) services; (3) diversified; (4) residential; (5) hotel & m0tel; (6) office; (7) healthcare; (8) industrial; (9) retail.

Actionable Conclusions: (11) Analysts Declare 5 Lowest Priced of Ten Highest Yield Real Estate Sector Leader Dogs Set To Deliver 14.78% vs. (10) 8.99% Net Gains by All Ten by July 26, 2017

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$5000 invested as $1k in each of the five Lowest priced stocks from the top ten real estate sector dividend kennel by yield were 11.56% LESS net gain than $5,000 invested as $.5k in each of all ten. The fifth lowest priced real estate dividend dog, NorthStar Realty Finance, was projected to deliver the best net gain of 27.38%.

Lowest priced five real estate dividend dogs for July 26 were: Fostons Group; Ashford Hospitality Trust; Apollo Residential Mortgage; Orchid Island Capital; NorthStar Realty Finance, with prices ranging from $3.45 to $12.83.

Higher priced five real estate dividend dogs for July 26 were: New Communications Sales & Leasing; The GEO Group; Chinese Estates Holdings, whose prices ranged from $13.63 to $59.37.

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, could also be used to find the more rewarding dogs in the real estate sector under different market conditions.

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 late-July, 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.

Five real estate sector dividend pups are listed as valuable catches as part of the now 49 Dogs of the Week described in The Dividend Dog Catcher premium site. Click here to learn more and subscribe.

A top performing DOTW dog for the first quarter has been named. A second quarterly winner was discovered May 13.

For a free copy of both quarterly reports and analysis of the winning Arnold Q1, Q2, & soon to be made Q3 August picks, send your e-mail address, ticker symbol for your favorite dividend stock, and name of your favorite team of any sport or activity to: fredrika120@gmail.com. Remember: E-mail, ticker, team!

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

Disclosure: I am/we are long ARR, GE, INTC, PFE, CSCO, 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 discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.