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 "Sell." Alteva (AMEX: ALTV) shares currently have a dividend yield of 11.70%. Alteva, Inc. provides cloud-based unified communications solutions for small, medium, and enterprise businesses. The average volume for Alteva has been 12,100 shares per day over the past 30 days. Alteva has a market cap of $53.0 million and is part of the telecommunications industry. Shares are down 14.8% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Alteva as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- 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 Diversified Telecommunication Services industry and the overall market, ALTEVA's return on equity significantly trails that of both the industry average and the S&P 500.
- ALTV's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 37.85%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- ALTEVA has improved earnings per share by 48.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ALTEVA swung to a loss, reporting -$0.54 versus $0.51 in the prior year. This year, the market expects an improvement in earnings (-$0.01 versus -$0.54).
- The current debt-to-equity ratio, 0.50, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.33 is very weak and demonstrates a lack of ability to pay short-term obligations.
- The gross profit margin for ALTEVA is rather high; currently it is at 51.40%. It has increased significantly from the same period last year.
- You can view the full Alteva Ratings Report.
- AG MORTGAGE INVESTMENT TRUST has improved earnings per share by 6.9% 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, AG MORTGAGE INVESTMENT TRUST increased its bottom line by earning $7.34 versus $2.01 in the prior year. For the next year, the market is expecting a contraction of 53.7% in earnings ($3.40 versus $7.34).
- The gross profit margin for AG MORTGAGE INVESTMENT TRUST is currently very high, coming in at 89.80%. Regardless of MITT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MITT's net profit margin of 30.67% compares favorably to the industry average.
- Investors have driven up the company's shares by 26.56% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the future course of this stock, we feel that the risks involved in investing in MITT do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
- 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 209.3% when compared to the same quarter one year prior, rising from $5.77 million to $17.85 million.
- You can view the full AG Mortgage Investment Ratings Report.
- STB has underperformed the S&P 500 Index, declining 11.72% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- The gross profit margin for STUDENT TRANSPORTATION INC is currently lower than what is desirable, coming in at 27.10%. Regardless of STB's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, STB's net profit margin of 2.49% is significantly lower than the industry average.
- The debt-to-equity ratio of 1.13 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, STB's quick ratio is somewhat strong at 1.34, demonstrating the ability to handle short-term liquidity needs.
- In comparison to the other companies in the Road & Rail industry and the overall market, STUDENT TRANSPORTATION INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Net operating cash flow has significantly increased by 85.17% to $22.19 million when compared to the same quarter last year. In addition, STUDENT TRANSPORTATION INC has also vastly surpassed the industry average cash flow growth rate of 22.41%.
- You can view the full Student Transportation Ratings Report.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Diversified Financial Services industry and the overall market, LIFE PARTNERS HOLDINGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- LPHI has underperformed the S&P 500 Index, declining 6.85% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- LIFE PARTNERS HOLDINGS INC has improved earnings per share by 20.0% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, LIFE PARTNERS HOLDINGS INC swung to a loss, reporting -$0.17 versus $1.25 in the prior year.
- The revenue fell significantly faster than the industry average of 7.3%. Since the same quarter one year prior, revenues fell by 35.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- LPHI has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 2.60, which clearly demonstrates the ability to cover short-term cash needs.
- You can view the full Life Partners Holdings Ratings Report.
- Our dividend calendar.