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 5 stocks with substantial yields, that ultimately, we have rated "Hold." ARMOUR Residential REIT (NYSE: ARR) shares currently have a dividend yield of 13.10%. ARMOUR Residential REIT, Inc. is a real estate investment trust launched and managed by ARMOUR Residential Management LLC. It invests in the real estate markets of the United States. The company has a P/E ratio of 6.55. The average volume for ARMOUR Residential REIT has been 9,400,600 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $2.4 billion and is part of the real estate industry. Shares are down 0.8% year to date as of the close of trading on Wednesday. TheStreet Ratings rates ARMOUR Residential REIT as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and attractive valuation levels. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year. Highlights from the ratings report include:
- ARR's very impressive revenue growth greatly exceeded the industry average of 16.4%. Since the same quarter one year prior, revenues leaped by 215.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- ARMOUR RESIDENTIAL REIT INC has improved earnings per share by 37.0% 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, ARMOUR RESIDENTIAL REIT INC increased its bottom line by earning $0.97 versus $0.02 in the prior year. For the next year, the market is expecting a contraction of 8.2% in earnings ($0.89 versus $0.97).
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ARMOUR RESIDENTIAL REIT INC's return on equity is below that of both the industry average and the S&P 500.
- ARR has underperformed the S&P 500 Index, declining 7.12% 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.
- You can view the full ARMOUR Residential REIT Ratings Report.