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 3 stocks with substantial yields, that ultimately, we have rated "Hold."Capstead Mortgage Corporation (NYSE: CMO) shares currently have a dividend yield of 9.50%. Capstead Mortgage Corporation operates as a real estate investment trust in the United States. The company has a P/E ratio of 9.50. The average volume for Capstead Mortgage Corporation has been 744,600 shares per day over the past 30 days. Capstead Mortgage Corporation has a market cap of $1.2 billion and is part of the real estate industry. Shares are up 13.3% year to date as of the close of trading on Thursday. TheStreet Ratings rates Capstead Mortgage Corporation as a hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- The gross profit margin for CAPSTEAD MORTGAGE CORP is currently very high, coming in at 94.80%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 59.57% significantly outperformed against the industry average.
- CMO, with its decline in revenue, underperformed when compared the industry average of 16.4%. Since the same quarter one year prior, revenues fell by 10.9%. 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 Real Estate Investment Trusts (REITs) industry. The net income has decreased by 22.7% when compared to the same quarter one year ago, dropping from $45.17 million to $34.92 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 Real Estate Investment Trusts (REITs) industry and the overall market, CAPSTEAD MORTGAGE CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Capstead Mortgage Corporation Ratings Report.
- The revenue growth came in higher than the industry average of 3.2%. Since the same quarter one year prior, revenues rose by 20.1%. 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.
- The debt-to-equity ratio is somewhat low, currently at 0.92, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, TGS has a quick ratio of 1.70, which demonstrates the ability of the company to cover short-term liquidity needs.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Gas Utilities industry average. The net income has decreased by 14.2% when compared to the same quarter one year ago, dropping from $23.10 million to $19.82 million.
- Net operating cash flow has decreased to $24.13 million or 28.26% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Transportadora de Gas del Sur Ratings Report.
- 48.30% is the gross profit margin for NUTRISYSTEM INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -8.04% trails the industry average.
- NTRI 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. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.80 is somewhat weak and could be cause for future problems.
- NTRI, with its decline in revenue, underperformed when compared the industry average of 19.6%. Since the same quarter one year prior, revenues slightly dropped by 6.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Internet & Catalog Retail industry and the overall market, NUTRISYSTEM INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$12.38 million or 73.21% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full NutriSystem Ratings Report.
- Our dividend calendar.