'Safer' Real Estate Dividends Bloom For Cherry Hill And Orchid In April

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Includes: AGNC, BXMT, CHMI, CYS, DX, EARN, LADR, MITT, MTGE, NLY, NRZ, ORC, RAS, SIR, STWD, VER
by: Fredrik Arnold

Summary

43 of 104 Real Estate Sector stocks showed positive one-year returns and free cash flow yields greater than dividend yields 4/19/17. Thus, those 43 were called "safer" for dividends.

Top 10 "safer" April Real Estate sector yields ranged 10.24% to 15.69% from NLY; MITT; MTGE; AGNC; EARN; NRZ; CHMI; RAS; CYS; ORC. Free cash flow yields ranged 10.94%-60.3%.

Besides safety margin, Real Estate dogs also reported payout ratios (lower is better), total annual returns, and dividend growth, as of 4/19/17 to further document their financial resilience.

Total annual returns narrowed the "Safer" Real Estate list to 102  just by discarding those firms reportiing negative numbers.

One-year targets revealed the ten highest-yield "safer" Real Estate Sector stocks can expect 3.85% more gain from $5k invested in the lowest-priced five than from $5K invested in all ten.

The Dividend Dogs Rule

The "dog" moniker was earned by stocks exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs." More specifically, these are, in fact, best called, "underdogs."

Six of Nine Industries Show "Safer" Dividends In The Real Estate Sector

Nine industries compose the Real Estate sector, and six of those were represented by the 43 firms whose stocks showed positive annual returns and margins of cash to cover dividends by this screen as of April 19.

The industry representation broke-out, thus: REIT - Diversified (20); REIT - Residential (7); REIT - Retail (6); REIT - Hotel & Motel (7); REIT - Industrial (2); REIT - Healthcare Facilities (1); REIT - Office (0); Real Estate Services (0); Real Estate - General (0).

The first two industries listed above populated the top ten Real Estate 'safer' dividend dog team by yield.

43 of 103 Real Estate Firms With "Safer" Dividends

Periodic Safety Inspection

A previous article discussed the attributes of the 50 Top yield Real Estate stocks.

You see grouped below the tinted list of 31 that passed the Real Estate dog "safer" check with positive past-year returns and cash flow yield sufficient to cover their anticipated annual dividend yield. The margin of cash excess is shown in the bold face "Safety Margin"column.

Financial guarantees, however, are easily over-ruled by boards of directors or company policies cancelling or varying the payout of dividends to shareholders. This article contends that adequate cash flow is a strong justification for a company to sustain annual dividend increases to shareholders.

Three additional columns of financial data, listed after the Safety Margin figures above, reveal payout ratios (lower is better), total annual returns, and dividend growth levels for each stock. This data is provided to reach beyond yield to select reliable payout stocks. Total annual returns by positive results only narrowed the Real Estate dogs list to 103 for this article. Positive results in all five columns after the dividend ratio is remarkable as a solid financial signal.

To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high yield "dog" metric, analyst mean price target estimates provided another tool to dig out bargains.

Actionable Conclusion (3): Wall St. Analysts Predicted A 1.91% 1 yr. Average Upside and 7.76% Net Gain For Top 30 April "Safer" Real Estate Stocks

Top dogs on the Real Estate stock list were graphed above to compare relative strengths by dividend and price as of April 19, 2017 with those projected by analyst mean price target estimates to the same date in 2018.

Historic prices and actual dividends paid from $10,000 invested as $1K in each of the ten highest yielding stocks and the aggregate single share prices of those ten stocks created the data points applied to 2017. Projections based on estimated increases in dividend amounts from $1000 invested in the ten highest yielding stocks and aggregate one year analyst mean target prices as reported by Yahoo Finance created the 2018 data points in blue for dividend and green for price. Note: one year target prices from one analyst were not applied (n/a).

Analysts projected a 3.4% lower dividend from $10K invested as $1k in the top ten April Real Estate dogs while aggregate single share price was projected to increase by 4.9% 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 above chart. Three to nine analysts were considered optimal for a valid projection estimate. Estimates provided by one analyst were usually not applied (n/a).

A beta (risk) ranking for each stock was provided in the far right column. 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 opposed to market direction.

Actionable Conclusion (4): Analysts Cast Top Ten Real Estate "Safer" Dog Stocks to Net 7.8% to 18.6% Gains To April, 2018

Four of the ten top dividend Real Estate dogs (shaded in the chart above) were verified as being among the Top ten gainers for the coming year based on analyst 1 year target prices. Thus the dog strategy for this Real Estate group as graded by analyst estimates for April proved 40% accurate.

Ten probable profit generating trades were illustrated by YCharts analytics for 2018:

Cherry Hill Mortgage Investment (CHMI) netted $186.19 based on estimates from five analysts, plus dividends less broker fees. The Beta number showed this estimate subject to volatility 63% less than the market as a whole.

RAIT Financial Trust (RAS) netted $180.00 based on dividends plus a median target price estimate from three analysts less broker fees. The Beta number showed this estimate subject to volatility 72% more than the market as a whole.

Orchid Island Capital (ORC) netted $163.94 based on mean target price estimates from two analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 48% less than the market as a whole.

Select Income REIT (SIR) netted $130.96 based on estimates from five analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 24% less than the market as a whole.

MTGE Investment (MTGE) netted $121.21, based on dividend, plus a median target price estimate from eight analysts, less broker fees. The Beta number showed this estimate subject to volatility 61% less than the market as a whole.

Starwood Property Trust (STWD) netted $112.04 based on a median target price estimate from nine analysts , plus projected annual dividend less broker fees. The Beta number showed this estimate subject to volatility 39% less than the market as a whole.

Blackstone Mortgage Trust (BXMT) netted $96.22 based on estimates from six analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 37% less than the market as a whole.

Ladder Capital (LADR) netted $89.61 based on dividends alone less broker fees. The Beta number showed this estimate subject to volatility 8% more than the market as a whole.

VEREIT (VER) netted $84.19 based on estimates from ten analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 33% less than the market as a whole.

Dynex Capital (DX) netted $78.31, based on dividend plus mean target price estimates from four analysts less broker fees. The Beta number showed this estimate subject to volatility 16% less than the market as a whole.

Average net gain in dividend and price was 12.43% on $10k invested as $1k in each of these ten Real Estate "safer" dividend stocks. This gain estimate was subject to average volatility 24% less than the market as a whole.

Dog Metrics Revealed Small Bargains From Lowest Priced Top Ten Yielding "Safe" Dividend Real Estate Sector Stocks

Ten "Safe" Real Estate firms with the biggest yields April 13 per YCharts data ranked themselves by yield as follows:

Actionable Conclusions: (1) Analysts Predicted 5 Lowest Priced, of Ten "Safer" Dividend High Yield Real Estate Sector Dogs, Will Deliver 7.53% VS. (2) 11.26% Net Gains from All Ten by April, 2018

$5000 invested as $1k in each of the five lowest priced stocks in the "safe" ten Real Estate Sector pack by yield were determined by analyst 1 year targets to deliver 33.14% LESS gain than $5,000 invested as $.5k in all ten. The seventh lowest priced "safer" dividend Real Estate dog, Cherry Hill Mortgage Investment (CHMI) showed the best analyst augured net gain of 18.62% per their targets.

Lowest priced five "safer" Real Estate dogs as of April 19 were: RAIT Financial Trust (RAS); CYS Investments (CYS); Orchid Island Capital (ORC); Annaly Capital Management (NLY); Ellington Residential (EARN), with prices ranging from $3.05 to $14.93.

Higher priced five "Safer" Dividend Real Estate dogs as of April 19 were: MTGE Investment (MTGE); Cherry Hill Mortgage Investment (CHMI); New Residential Investment (NRZ); AG Mortgage Investment (MITT); AGNC Investment (AGNC), with prices ranging from $17.35 to $20.63. Smaller Real Estate dogs won out here.

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 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.

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 mentioned 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 apply the dividend dog data featured in this article and this instablog to aid your safe investing. -- Fredrik Arnold

Stocks listed above were suggested only as possible starting points for your safest "Safer" Real Estate dog dividend stock research process. These were not recommendations.

One or more of these Real Estate sector dividend pups qualified as a valuable catches! They are helping make investing fun again! Find them among the 52 Dogs of the Week (DOTW)I and others among 34 DOTWII found on The Dividend Dog Catcher premium site. Click here to subscribe or get more information.

It's about time to make investing fun again. To suggest a favorite stock for my next FFave crowd-sourced article in May and to get a free copy of the monthly top dogs, the quarterly reports, and the dog of the year winner and runner-up underdog from the 52 Dogs of the Week (DOTW) I portfolio, plus a glimpse at the top dogs in DOTW II, send along your email address, ticker symbol of your favorite dividend stock, and the name of your favorite team of any sport or activity by messaging me by clicking on the envelope icon next to my name below the headline of this article. Remember: email, ticker, team! Root for the Underdog.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from Ycharts and Yahoo Finance; analyst mean target price by Thomson/First Call on Yahoo Finance. Dog photo from thedodo.com.

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/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.