10 Financial Dividend Dogs Flaunt 12% To 27% November One Year Upsides

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Includes: ARR, CYS, EFC, HLSS, IVR, KCAP, MTGE, NYMT, OCSL, OXSQ, PSEC, RAS, RSO, TCAP, VER, WMC
by: Fredrik Arnold

Summary

10 top financial dividend dogs averaged 18% 1 yr. upsides after October.

Top ten financial dogs by yield were barely bullish while Dow dogs charged onward though November.

Analysts projected 24% to 35% 1 yr. net gains for RAS, FSC, PSEC, EFC, TCAP, RSO, ARCAP, HLSS, TICC, & IVR.

Consider these as starting points for your December financial dog stock investment research.

Actionable Conclusions: (1) RAIT Financial Trust (NYSE:RAS) at 27.2%, (2) Fifth Street Finance (FSC) at 21.2%, & (3) Triangle Capital Corp at 21.1% Led November Financial Dog Upsides

The good news of the bad news about last month's Financial dog upside leaders is faded and forgotten with visions of 50% returns. So it was back to future reality for analysts in November as the flurry of bearish exuberance concentrated on the basic materials sector. Financials are back to their bullish ways!

The late November upside leaders emerged from outside of the top ten as determined by yield. The thirtieth dog by yield. RAIT Financial Trust, was tops by analyst projected upside. Second best by analyst upside projections, Fifth Street Finance placed eleventh by yield. Third best upside was claimed by Triangle Capital Corp., the twenty-eighth best yielder.

Yield (dividend / price) results from here verified by Yahoo Finance for monthly dividend paying Small, Mid, & Large cap financial stocks as of market closing prices November 28 were augmented by analyst 1-yr target projections to reveal six actionable conclusions discussed above and continued below. Small cap firms were valued at $200M(illion) to $2B(illion); Mid cap firms were worth $2B to $10B; Large caps were valued above $10B.

Wall Street Wizard Weights

One-year mean or median target price set by brokerage analysts multiplied by the number of shares in a $1k investment were used to compare the above ten stocks showing the highest upside price potential into 2015 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 demonstrated the most accurate mean target price estimates.

Fifty 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

This article was written to reveal bargain stocks to buy and hold from November to May or, perhaps, up to one full year. See the 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 Screened 50 Financial Stocks by Yield

The top ten financial sector dogs showing the biggest dividend yields by this screen as of November 28, 2014 represented five industries: (1) mortgage investment; (2) residential REIT; (3) asset management; (4) closed end fund - debt; (5) diversified REIT.

The top financial sector stock by yield, Western Asset Mortgage Capital Corp (NYSE:WMC) [1] was one of two Mortgage Investment firms. The other, mortgage investor, placed fourth, Ellington Financial LLC (NYSE:EFC) [4] .

The best two of four residential REITs, placed second and third, Resource Capital (NYSE:RSO) [2] and Armour Residential REIT (NYSE:ARR) [3]. Two other residential REITS placed sixth and eighth, New York Mortgage Trust Inc (NASDAQ:NYMT) [6]; CYS Investments (NYSE:CYS) [8].

A single business development company, listed as an asset management firm, placed fifth, Prospect Capital Corporation (NASDAQ:PSEC) [5]. Also another business development company, listed as closed end fund - debt by Yahoo! Finance, placed seventh, TICC Capital Corp. (TICC) [7].

Finally, two Diversified REITs in ninth and tenth places, Kohlberg Capital (NASDAQ:KCAP) [9], and American Capital Mortgage Investment Corp. (NASDAQ:MTGE) [10] completed the top ten financial dogs by yield.

Financial Top Dividend vs. Price Results Compared to Dow Dogs

Graphs below compared relative strengths of the top ten financial sector dogs by yield as of market close 11/28/2014 with those of the Dow industrials 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 dividends.

Actionable Conclusion (4): Financial And Dow Dogs Both Charged Through November

Financial sector dividend payers as of November 28 were barely bullish. Dividends from $10k invested as $1k in each of the top ten stocks fell, while aggregate single share price of those ten rose slightly. Dividend fell at a rate of 0.8% after October while total single share price squeaked up 0.4% for the period.

Meanwhile, Dow dogs charged as projected annual dividend from $10k invested as $1K in each of the top ten dropped 5% since October. At the same time, aggregate single share price jumped up 7% to confirm the bullish month.

The Dow dogs overbought condition (where aggregate single share price of the ten exceeded projected annual dividend from $1k invested in each of the ten) increased. The overhang of $149 or 40% in March, widened to $187 or 51% for April, retreated to $174 or 48% in May, expanded to $212 or 58% for June, shrank to $189 or 51% for July, grew to $205 or 56% for August, widened to a record $231 or 60% for September, narrowed to $197 or 51% for October, but ballooned to a new record $257 or 70% in November.

To quantify top dog rankings, analyst mean price target estimates act as a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metric, they are another tool to dig out bargains. Projected gains based on analyst targets provide a here and now equivalent of waiting a year to find out what will happen in the market. Analysts are historically 20% to 80% accurate on the direction of change and about 0% to 20% accurate on the degree of the change.

Actionable Conclusion (5): Wall Street

Wizards Wished A 17.27% Average Net Gain from Top 30 Financial Dogs By Late November 2015

Top thirty dogs in the financial sector were graphed below to show relative strengths by dividend and price as of November 28, 2014 and those projected by analyst mean price target estimates to the same date in 2015.

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 as of 2015.

Historic prices and actual dividends paid from $30,000 invested as $1k in each of the highest yielding stocks and the aggregate single share prices of those thirty stocks divided by 3 created data points for 2014. Projections based on estimated 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 2015 data points green for price and blue for dividend.

Yahoo reported that analysts projected a 7% lower dividend from $10K invested in this group while aggregate single share price was projected to increase by nearly 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 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 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 than market movement. A negative beta number indicated the degree of a stock price movement opposite market direction.

Actionable Conclusion (6): Analysts Alleged Ten Financial Dog Net Gains of 23.5% to 34.9% By Late November 2015

Four of ten top dividend yielding financial dogs were verified as being among the ten of thirty 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 Thompson/First Call in Yahoo Finance for 2015:

RAIT Financial Trust was projected to net $349.42 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 113% greater than the market as a whole.

Fifth Street Finance was projected to net $316.41 based on a mean target price estimate from six analysts combined with projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 32% less than the market as a whole.

Prospect Capital Corporation was projected to net $314.04 based on dividends plus mean target price estimates by six analysts less broker fees. The Beta number showed this estimate subject to volatility 17% less than the market as a whole.

Ellington Financial LLC was projected to net $301.92, based on dividends plus mean target price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 59% less than the market as a whole.

Triangle Capital Corp (NYSE:TCAP) was projected to net $291.60, based on dividend plus mean target price estimates from six analysts less broker fees. The Beta number showed this estimate subject to volatility 45% less than the market as a whole.

Resource Capital was projected to net $270.32, based on dividends plus mean target price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 26% less than the market as a whole.

American Realty Capital Properties Inc (ARCP) was projected to net $256.17 based on dividends plus a mean target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 77% less than the market as a whole.

Home Loan Servicing Solutions Ltd. (NASDAQ:HLSS) was projected to net $242.03, based on dividends plus mean target price estimates from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 22% less than the market as a whole.

TICC Capital Corp was projected to net $235.47 based on dividends plus the mean of annual price estimates from three analysts less broker fees. The Beta number showed this estimate subject to volatility 26% less than the market as a whole.

Invesco Mortgage Capital (NYSE:IVR) was projected to net $235.29 based on dividends plus a mean target price estimate from eight analysts less broker fees. The Beta number showed this estimate subject to volatility 30% less than the market as a whole.

The average net gain in dividend and price was estimated at 28.13% on $10k invested as $1k in each of these ten dogs. This gain estimate was subject to average volatility 22% less than the market as a whole.

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.

Stocks listed above were suggested only as possible starting points for your index dog dividend stock purchase or sale 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.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.indexarb.com; www.dividend.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance.

Disclosure: The author is long FSC, CSCO, GE, PFE, T, VZ.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.