Morningstar/YChart (M/Y) real estate sector results tallied as of market closing prices June 28 compared with analyst mean target gain results one year hence showed ARMOUR Residential REIT (NYSE:ARR), CYS Investments (NYSE:CYS), Apollo Residential Mortgage (NYSE:AMTG), Newcastle Investment Corp. (NCT), and American Capital Mortgage (NASDAQ:MTGE) exhibiting 34.39% to 41.99% price upsides.
The chart above used the one year mean target price set by brokerage analysts matched against June 28 closing price to compare ten sector stocks showing the highest upside price potential into 2014 out of 20 selected by yield. The number of analysts providing price estimates was noted after the name for each stock. Three to nine analysts were considered optimal for a valid mean target price estimate.
This report series started applying dog dividend methodology in February prompted by Seeking Alpha reader requests. It complemented reports of possible dividend yield based buy opportunities from eight major market sectors as listed by Yahoo Finance posted since the fall of 2011.
So, responding to both the Seeking Alpha reader requests and Ycharts.com migration to an eleven sector list, this report series provided three actionable conclusions about the highest yield (dividend / price) stocks from the Morningstar/YChart (M/Y) sectors: basic materials; communication services; consumer cyclical; consumer defensive; energy; financial services; healthcare; industrials; real estate; technology; utilities.
Below the author compared Dow dividend dog theory picks with one year mean target price estimates reported from broker analysts to reveal the following Arnold M/Y Real Estate selections for May/June:
Dog Metrics Picked Prime M/Y Real Estate Stocks
Top ten real estate sector dogs showing the biggest dividend yields by YChart's screen as of June 28 represented just two industries. Top real estate sector stock, American Capital Agency (NASDAQ:AGNC) was one of six residential REITs. Others in that industry were Armour Residential REIT (ARR), in second, Apollo Residential Mortgage (AMTG) in sixth, New York Mortgage Trust (NASDAQ:NYMT), in seventh. CYS Investments (CYS) ninth, and Resource Capital Corporation (NYSE:RSO) in tenth. One of four diversified REITs in the top ten, American Capital Mortgage Investment (MTGE), was third. The other diversified REITs were Western Asset Mortgage Capital (NYSE:WMC) in fourth, AG Mortgage Investment Trust (NYSE:MITT) in fifth, and Invesco Mortgage Capital (NYSE:IVR), in eighth position which completed the top ten.
Dividend vs. Price Results Compared to Dow Dogs
Below is a graph of the relative strengths of the prime ten M/Y real estate dogs by yield as of market close 6/28/2013 compared to those of the Dow. Historic projected annual dividend history from $1000 invested in each of the ten highest yielding stocks and the total single share prices of those ten stocks created the data points shown in green for price and blue for dividend.
Actionable Conclusion (1): M/Y Real Estate Dogs Bearish; Dow Went Bullish
The May/June m/y real estate collection of dividend payers took a very bearish price course as aggregate single share price dropped 22.3% since April. Dividend from $1k invested in each of the top ten m/y real estate stocks, popped up at a rate of 19.7% last month.
For the Dow dogs, meanwhile, projected annual dividend from $1k invested in each of the top ten dropped over 2.2% since April, while aggregate single share price popped up over 13.6%. The Dow dogs bull run increased their overbought condition as aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten by over $198 or 53%.
Since sector dogs are not the blue chip high quality equivalents of the Dow list, an additional gauge of upside potential was added to the simple high yield metric used to pull out initial bargains.
Actionable Conclusion Two (2): Wall Street Wizard Wisdom Was Weighed to Find a 27.46% Net Gain from Top 20 Real Estate Dogs Come 2014
Top twenty dogs for the M/Y Real Estate sector were graphed below to show relative strengths by dividend and price as of June 28, 2013 and those projected by analyst mean price target estimates to the same date in 2014.
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 mean target price was used to gauge the stock price upsides and net gains including dividends less broker fees of $20 as of 2014.
Historic prices and actual dividends paid from $1000 invested in the ten highest yielding stocks and the aggregate single share prices of those twenty stocks divided by 2 created data points for 2013. Projections based on estimated increases in dividend amounts from $1000 invested in the twenty highest yielding stocks and aggregate one year analyst target share prices from Yahoo Finance divided by 2 created the 2014 data points green for price and blue for dividends.
Yahoo projected a 15.7% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by over 19% in the coming year. The number of analysts contributing to the mean target price estimate for each stock was noted in 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 analyst rated stock was provided in the far right column on 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.
Actionable Conclusion Three (3): Analysts Forecast 10 Top M/Y Real Estate DiviDogs to Net 14.3% to 24.4% by 2014
Ten probable profit generating trades revealed by Yahoo Finance for 2014 were:
American Capital Mortgage (MTGE) netted $577.89 based on dividends plus the mean of annual price estimates from nine analysts less broker fees;
Apollo Residential Mortgage (AMTG) netted $519.44 based on dividends plus the mean of annual price estimates from seven analysts less broker fees;
ARMOUR Residential REIT (ARR) netted $502.29 based on dividends plus a mean target price estimate from nine analysts less broker fees;
Newcastle Investment Corp. (NCT) netted $496.25 based on a mean target price estimate from five analysts combined with projected annual dividend less broker fees;
CYS Investments (CYS) netted $478.37, based on dividends plus a mean target price estimate from thirteen analysts less broker fees;
American Capital Agency (AGNC) netted $400.69 based on target estimates from seventeen analysts plus dividends less broker fees;
Invesco Mortgage Capital (NYSE:ARI) netted $386.40, based on dividends plus a mean target price estimate from nine analysts less broker fees;
Western Asset Mortgage (WMC) netted $346.55 based on estimates from seven analysts plus dividends less broker fees.
PennyMac Mortgage (NYSE:PMT) netted $320.62 based on a mean target price estimate from eight analysts combined with projected annual dividend less broker fees;
New York Mortgage Trust (NYMT) netted $272.47 based on dividends plus a mean target price estimate from three analysts less broker fees;
The average net gain was slightly over 43% on $1k invested in each of these ten real estate dogs.
The above net gain estimates did not factor-in any tax problems resulting from distributions (not dividends and K-1s) from MLPs and any possible re-capture tax problems/rates that could suck projected gains out of some of these estimates at the regular tax bracket rate and not capital gain rates. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.
The stocks listed above were suggested only as decent starting points for your M/Y sector dividend stock purchase research process. These were not recommendations.
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.
Disclosure: I am long ARR, DD, GE, INTC, JNJ, MCD, PFE, T, 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.