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.