While plenty of high-yield opportunities exist, investors must always consider the safety of their dividend and the total return potential of their investment. It is not uncommon for a struggling company to suspend high-yielding dividends and subsequently result in precipitous share price declines.
TheStreet Ratings' stock rating model views dividends favorably, but not so much that other factors are disregarded. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e. how much one is willing to risk in order to earn profits?; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to its stock's performance.
These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. As always, stock ratings should not be treated as gospel — rather, use them as a starting point for your own research.
The following pages contain our analysis of 4 stocks with substantial yields, that ultimately, we have rated "Buy." PennyMac Mortgage Investment (NYSE: PMT) shares currently have a dividend yield of 8.90%. PennyMac Mortgage Investment Trust, a specialty finance company, through its subsidiaries, invests primarily in residential mortgage loans and mortgage-related assets. The company operates in two segments, Correspondent Lending and Investment Activities. The company has a P/E ratio of 8.19. Currently there are 5 analysts that rate PennyMac Mortgage Investment a buy, no analysts rate it a sell, and 1 rates it a hold. The average volume for PennyMac Mortgage Investment has been 1,092,500 shares per day over the past 30 days. PennyMac Mortgage Investment has a market cap of $1.5 billion and is part of the real estate industry. Shares are up 1.3% year to date as of the close of trading on Wednesday. TheStreet Ratings rates PennyMac Mortgage Investment as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, attractive valuation levels, solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- PMT's very impressive revenue growth greatly exceeded the industry average of 16.4%. Since the same quarter one year prior, revenues leaped by 219.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 36.14% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, PMT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- PENNYMAC MORTGAGE INVEST TR has improved earnings per share by 18.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, PENNYMAC MORTGAGE INVEST TR increased its bottom line by earning $3.08 versus $2.37 in the prior year. This year, the market expects an improvement in earnings ($3.45 versus $3.08).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 150.6% when compared to the same quarter one year prior, rising from $19.65 million to $49.24 million.
- You can view the full PennyMac Mortgage Investment Ratings Report.