Real Estate Leader CXW Gains Upside As Price Sags

|
Includes: AHT, ANH, CESTY, CSAL, CXW, FXTGY, GEO, GOV, INTC, JPM, LMRK, MRK, NRF, NRZ, NYMT, ORC, PG, SNH, XHR
by: Fredrik Arnold

Summary

Yields from all nine Real Estate leading component industries plus one runner-up averaged 11.35% 9/26/16. Forty-five components (5 per industry) ranged 3.36%-16.11%. Top yielder was NYMT.

Top ten real estate industry leaders by yield, GOV, CSAL, AHT, FXTGY, GEO, NRF, CXW, CESTY, ORC, & NYMT, charged ahead after August as Dow dogs retreated.

Ten industry leader upsides averaged 14.35% while net gains averaged 22.92% per analyst 1yr. targets. Top thirty upsides averaged 3.7% with 12.3% net gains.

Analyst 1yr. targets forecast ten top gains ranging 15.6%-39.98% from NRZ, ANH, ORC, XHR, NYMT, AHT, LMRK, NRF, GEO, & CXW tops. Two cast average 4.01% losses.

Analysts estimated $5k invested in the lowest priced five of 9+1 real estate leaders would show 10.41% more gain than from $5k invested in all ten come 2017.

Real Estate Industry September Lead Dogs

Yield (dividend / price) results from here verified by Yahoo Finance were calculated as of September 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.

The 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."

Click to enlarge

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 Aligned Real Estate Stocks In 9 Industries

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

Click to enlarge

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

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

The Healthcare RE top dog placed sixth, The GEO Group (NYSE:GEO) [6]. RE services leader placed seventh, Foxtons Group (OTCPK:FXTGY) [7]. In eighth place, was lodging RE leader, Ashford Hospitality Trust (NYSE:AHT) [8] The industrial RE top dog took ninth place, Communications Sales & Leasing (NASDAQ:CSAL) [9]. The last slot in the top ten by yield were claimed by the office RE leader, Government Properties Investment Trust (NYSE:GOV) [10]. So, this completed the top ten September real estate sector leader board by yield.

Real Estate Leader Dividend vs. Price Results Were Incomparable To Dow Dogs

A Dow industrial index graph below contrasted the relative strengths of the top ten real estate sector leader dogs (plus one) above as of market close 9/26/2016. 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.

Actionable Conclusions: (2) Real Estate Leader Dogs Charged As (3) Dow Dogs Retreated

Real estate sector dogs shown above charged as dividend fell while price popped up after August. Dividend from $10k invested as $1k in each of the top nine plus one RE Leader dogs dropped 0.8% into September while total single share price inclined 2.9% for the period, igniting the charge.

Click to enlarge

In opposing manner, Dow dogs retreated as their dividend from $1k in each of ten dogs increased while the aggregate single share price of those ten stocks dropped after August. Projected annual dividend from $10k invested as $1K in each of the top ten increased 2%. At the aggregate share price fell 12% to make the Dow dogs less 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) shrank.

Actionable Conclusion (4): Dow Dogs Reel In Their Gap

The overbought overhang January 12, 2016, was 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 JPMorganChase (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%. August widened the chasm to $479 or 131%. September cut the gap to $368 or 98%.

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 September average price per dollar of annual dividend was $26.39.

Conversely, the real estate dog chart shows those dogs to be both 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 $8.78, or about 3 times less than of the Dow price.

Wall Street Wizard Wisdom

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.

Click to enlarge

Actionable Conclusion: (5) Analysts Alleged 14.35% Average Price Upsides For Ten September Real Estate Sector Leader Dogs, & (6) A 19.59% Downside for The Lowest One (Of Seven Down Dogs).

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.

Click to enlarge

Actionable Conclusions: Wall St. Analysts Predicted (7) A 3.7% Average Upside, & (8) A 12.29% Average 1 yr. Net Gain from Top 30 September Real Estate Leaders

Real estate sector industry leader dogs were graphed below to show relative strengths by dividend and price as of September 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.

Analyst targets reported by Yahoo! Finance forecast 3.95% 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 2.7% 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.

Click to enlarge

Actionable Conclusion (9): Analysts Reckoned 15.6% to 39.98% Net Gains for Nine+1 Real Estate Leaders As Of September, 2017.

Seven of the ten top dividend yielding financial services 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 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:

Corrections Corp was projected to net $399.80, based on dividends plus median target price estimates from two analysts less broker fees. The Beta number showed this estimate subject to volatility 64% less than the market as a whole.

The GEO Group was projected to net $304.13 based on dividends plus a median target price estimate from two analysts less broker fees. The Beta number showed this estimate subject to volatility 22% more than the market as a whole.

NorthStar Realty Finance was projected to net $270.82 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.

Landmark Infrastructure (NASDAQ:LMRK) was projected to net $224.01 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.

Ashford Hospitality Trust was projected to net $212.29 based on dividends plus median target price estimates from nine analysts less broker fees. The Beta number showed this estimate subject to volatility 70% more than the market as a whole.

New York Mortgage Trust was projected to net $189.73 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 53% more than the market as a whole.

Xenia Hotels & Resorts (NYSE:XHR) was projected to net $181.55 based on a median target price estimate from two analysts combined with projected annual dividend less broker fees. A Beta number was not available for XHR.

Orchid Island Capital was projected to net $179.62 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 30% less than the market as a whole.

Anworth Mortgage Asset (NYSE:ANH) was projected to net $173.74 based on dividends plus median target price estimates by three analysts less broker fees. The Beta number showed this estimate subject to volatility 85% less than the market as a whole.

New Residential Investment (NYSE:NRZ) was projected to net $155.98 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 equal to the market as a whole.

The average net gain in dividend and price was estimated at 22.92% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 5% more than the market as a whole.

Actionable Conclusion (10): (Bear Alerts) Analysts Estimated Two Real Estate Sector Leader Dogs To Average A Net Loss of 4.1% By September, 2017

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

Click to enlarge

Senior Housing Properties (NYSE:SNH) was projected to lose $61.22 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 53% less than the market as a whole.

Government Properties Investment Trust was projected to lose $143.15 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 6% more than the market as a whole.

Average net loss was estimated at 10.22% on 2k invested as $1k in each of these two dogs. This loss estimate was subject to average volatility 23% less than the market as a whole.

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

Click to enlarge

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, Corrections Corporation of America . Price momentum contradicts these broker predictions.

Perhaps we are seeing a gap caused by reality trumping analyst estimates. It's good business to have government contracts, like those the GOV office REIT maintains.

However, hen the President announced a new policy excluding private prisons from federal funding, last month, CXW price plunged. Mr. Market treats such tremors as fatal shocks. While there are oncoming federal bureaucratic headwinds, note that there are also , 50 states with prison budgets.

Dog Metrics Found 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.

Click to enlarge

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

Actionable Conclusions: (11) Analysts Believe 5 Lowest Priced of Ten Highest Yield Real Estate Sector Leader Dogs Are Set To Deliver 18.33% VS. (10) 16.6% Net Gains by All Ten by September 26, 2017

Click to enlarge

$5000 invested as $1k in each of the five Lowest priced stocks from the top ten real estate sector dividend kennel by yield may produce 10.41% more net gain than $5,000 invested as $.5k in each of all ten. The sixth lowest priced real estate dividend dog, Corrections Corp , was projected to deliver the best net gain of 39.98%.

Lowest priced five real estate dividend dogs for August 24 were: Foxtons Group; New York Mortgage Trust; Ashford Hospitality Trust; Orchid Island Capital; NorthStar Realty Finance, with prices ranging from $2.71 to $12.86.

Higher priced five real estate dividend dogs for August 24 were: Corrections Corp; Government Properties IT; The GEO Group; Communications Sales & Leasing; Chinese Estates Holdings, whose prices ranged from $15.96 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.

Annual Analyst Accuracy

You see below the one year result of ten analyst target estimates for Top Yield REIT stocks per Yahoo from this article from September 15, 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.

Click to enlarge

The "basic method" analyst accuracy score for top ten Real Estate Investment Trust stocks by yield between September 11, 2015 and September 26, 2016 was two losses and eight gains. This group of ten-industry REITs showed an 80% positive result since 2015. Aren't you glad you got aboard the REIT bandwagon last year? Unless, of course, you invested in WMC or WHLR.

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-August, 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.

Six real estate sector dividend pups are valuable catches! Find them as six of the now 52 Dogs of the Week found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.

A top performing DOTW dog for the first quarter has been named. A second quarterly winner was discovered May 13. The third quarter top gaining dog was announced August 22.

For a free copy of both previous quarterly reports Q1, & Q2 and analysis of the new winning Arnold the Q3 pick, 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. Dog House Photo: prettyfluffy.com

Disclosure: I am/we are long CSCO, INTC, GE, 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 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.