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."Arlington Asset Investment (NYSE: AI) shares currently have a dividend yield of 12.90%. Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets. The company has a P/E ratio of 1.47. The average volume for Arlington Asset Investment has been 347,400 shares per day over the past 30 days. Arlington Asset Investment has a market cap of $433.7 million and is part of the real estate industry. Shares are up 26% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Arlington Asset Investment as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity and expanding profit margins. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall. Highlights from the ratings report include:
- AI's very impressive revenue growth greatly exceeded the industry average of 4.7%. Since the same quarter one year prior, revenues leaped by 66.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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. Compared to other companies in the Capital Markets industry and the overall market, ARLINGTON ASSET INVESTMENT's return on equity significantly exceeds that of both the industry average and the S&P 500.
- ARLINGTON ASSET INVESTMENT 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 two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, ARLINGTON ASSET INVESTMENT increased its bottom line by earning $15.11 versus $1.98 in the prior year. For the next year, the market is expecting a contraction of 73.3% in earnings ($4.03 versus $15.11).
- Net operating cash flow has decreased to $7.45 million or 16.67% when compared to the same quarter last year. Despite a decrease in cash flow of 16.67%, ARLINGTON ASSET INVESTMENT is still significantly exceeding the industry average of -121.89%.
- You can view the full Arlington Asset Investment Ratings Report.
- CNSL's very impressive revenue growth greatly exceeded the industry average of 2.2%. Since the same quarter one year prior, revenues leaped by 70.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has increased to $51.32 million or 39.15% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 21.31%.
- The gross profit margin for CONSOLIDATED COMM HLDGS INC is rather high; currently it is at 61.40%. Regardless of CNSL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.28% trails the industry average.
- 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. When compared to other companies in the Diversified Telecommunication Services industry and the overall market, CONSOLIDATED COMM HLDGS INC's return on equity is below that of both the industry average and the S&P 500.
- In its most recent trading session, CNSL 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. 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.
- You can view the full Consolidated Communications Ratings Report.
- The revenue growth came in higher than the industry average of 2.2%. Since the same quarter one year prior, revenues rose by 12.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- 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 Diversified Telecommunication Services industry and the overall market on the basis of return on equity, PORTUGAL TELECOM SGPS SA has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Net operating cash flow has declined marginally to $582.08 million or 1.20% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Portugal Telecom Ratings Report.
- The revenue growth greatly exceeded the industry average of 0.7%. Since the same quarter one year prior, revenues rose by 41.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, EAGLE ROCK ENERGY PARTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for EAGLE ROCK ENERGY PARTNRS LP is currently extremely low, coming in at 7.80%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -17.65% is significantly below that of the industry average.
- You can view the full Eagle Rock Energy Partners Ratings Report.
- Our dividend calendar.