4 Hold-Rated Dividend Stocks

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 4 stocks with substantial yields, that ultimately, we have rated "Hold."

Invesco Mortgage Capital

Dividend Yield: 12.30%

Invesco Mortgage Capital (NYSE: IVR) shares currently have a dividend yield of 12.30%.

Invesco Mortgage Capital Inc., a real estate investment trust (REIT), focuses on investing in, financing, and managing residential and commercial mortgage-backed securities and mortgage loans. It invests in residential mortgage-backed securities for which a U.S. The company has a P/E ratio of 7.29.

The average volume for Invesco Mortgage Capital has been 2,150,400 shares per day over the past 30 days. Invesco Mortgage Capital has a market cap of $2.8 billion and is part of the real estate industry. Shares are up 6.2% year to date as of the close of trading on Friday.

TheStreet Ratings rates Invesco Mortgage Capital as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, compelling growth in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • 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 38.55%.
  • 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 9.5% in earnings ($2.62 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.

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Hatteras Financial Corporation

Dividend Yield: 10.10%

Hatteras Financial Corporation (NYSE: HTS) shares currently have a dividend yield of 10.10%.

Hatteras Financial Corp. operates as an externally-managed mortgage real estate investment trust (REIT) in the United States. The company has a P/E ratio of 7.54.

The average volume for Hatteras Financial Corporation has been 763,000 shares per day over the past 30 days. Hatteras Financial Corporation has a market cap of $2.7 billion and is part of the real estate industry. Shares are up 11.5% year to date as of the close of trading on Friday.

TheStreet Ratings rates Hatteras Financial Corporation as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, attractive valuation levels and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 16.5%. Since the same quarter one year prior, revenues rose by 45.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Net operating cash flow has increased to $126.14 million or 20.79% when compared to the same quarter last year. Despite an increase in cash flow, HATTERAS FINANCIAL CORP's cash flow growth rate is still lower than the industry average growth rate of 38.55%.
  • In its most recent trading session, HTS has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • 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, HATTERAS FINANCIAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.

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Sun Communities

Dividend Yield: 5.20%

Sun Communities (NYSE: SUI) shares currently have a dividend yield of 5.20%.

Sun Communities, Inc. operates as a real estate investment trust (REIT). It owns, operates, and develops manufactured housing communities in the midwestern, southern, and southeastern United States. The company has a P/E ratio of 271.06.

The average volume for Sun Communities has been 229,100 shares per day over the past 30 days. Sun Communities has a market cap of $1.5 billion and is part of the real estate industry. Shares are up 22.7% year to date as of the close of trading on Friday.

TheStreet Ratings rates Sun Communities as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that the company's profit margins have been poor overall.

Highlights from the ratings report include:
  • SUI's revenue growth has slightly outpaced the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 19.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • SUN COMMUNITIES INC reported significant earnings per share improvement 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, SUN COMMUNITIES INC turned its bottom line around by earning $0.20 versus -$0.05 in the prior year. This year, the market expects an improvement in earnings ($0.46 versus $0.20).
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, SUN COMMUNITIES INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • The gross profit margin for SUN COMMUNITIES INC is rather low; currently it is at 19.10%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -0.44% is significantly below that of the industry average.

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Mercury General Corporation

Dividend Yield: 6.10%

Mercury General Corporation (NYSE: MCY) shares currently have a dividend yield of 6.10%.

Mercury General Corporation, together with its subsidiaries, engages in writing personal automobile insurance. The company also writes homeowners, commercial automobile and property, mechanical breakdown, fire, and umbrella insurance. The company has a P/E ratio of 18.90.

The average volume for Mercury General Corporation has been 416,500 shares per day over the past 30 days. Mercury General Corporation has a market cap of $2.2 billion and is part of the insurance industry. Shares are up 1.3% year to date as of the close of trading on Friday.

TheStreet Ratings rates Mercury General Corporation as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • MCY's debt-to-equity ratio is very low at 0.08 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • MCY, with its decline in revenue, underperformed when compared the industry average of 17.7%. Since the same quarter one year prior, revenues slightly dropped by 9.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Insurance industry. The net income has significantly decreased by 121.9% when compared to the same quarter one year ago, falling from $79.47 million to -$17.38 million.
  • 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 Insurance industry and the overall market, MERCURY GENERAL CORP's return on equity is below that of both the industry average and the S&P 500.

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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.
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