Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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 3 stocks with substantial yields, that ultimately, we have rated "Hold."Newcastle Investment Corporation (NYSE: NCT) shares currently have a dividend yield of 8.20%. Newcastle Investment Corp. operates as a real estate investment and finance company in the United States. The company has a P/E ratio of 3.64. Currently there are 3 analysts that rate Newcastle Investment Corporation a buy, no analysts rate it a sell, and none rate it a hold. The average volume for Newcastle Investment Corporation has been 5,708,500 shares per day over the past 30 days. Newcastle Investment Corporation has a market cap of $2.7 billion and is part of the real estate industry. Shares are up 27.3% year to date as of the close of trading on Thursday. TheStreet Ratings rates Newcastle Investment Corporation as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and compelling growth in net income. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good. Highlights from the ratings report include:
- NCT's revenue growth has slightly outpaced the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 19.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 77.77% and other important driving factors, this stock has surged by 72.37% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, NEWCASTLE INVESTMENT CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- NEWCASTLE INVESTMENT CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, NEWCASTLE INVESTMENT CORP reported lower earnings of $2.84 versus $3.49 in the prior year. For the next year, the market is expecting a contraction of 61.1% in earnings ($1.11 versus $2.84).
- You can view the full Newcastle Investment Corporation Ratings Report.
- Net operating cash flow has increased to $1,044.00 million or 25.17% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 5.34%.
- FE, with its decline in revenue, underperformed when compared the industry average of 13.3%. Since the same quarter one year prior, revenues fell by 10.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- FIRSTENERGY CORP has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, FIRSTENERGY CORP reported lower earnings of $1.84 versus $2.13 in the prior year. This year, the market expects an improvement in earnings ($3.00 versus $1.84).
- The debt-to-equity ratio of 1.46 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.18, which clearly demonstrates the inability to cover short-term cash needs.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Electric Utilities industry and the overall market, FIRSTENERGY CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full FirstEnergy Ratings Report.
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 22.0% when compared to the same quarter one year prior, going from $75.59 million to $92.23 million.
- Net operating cash flow has increased to $118.39 million or 15.03% when compared to the same quarter last year. Despite an increase in cash flow, INVESCO MORTGAGE CAPITAL INC's cash flow growth rate is still lower than the industry average growth rate of 38.95%.
- INVESCO MORTGAGE CAPITAL INC has improved earnings per share by 16.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, INVESCO MORTGAGE CAPITAL INC reported lower earnings of $2.89 versus $3.45 in the prior year. For the next year, the market is expecting a contraction of 9.7% in earnings ($2.61 versus $2.89).
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, INVESCO MORTGAGE CAPITAL INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full Invesco Mortgage Capital Ratings Report.
- Our dividend calendar.