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 "Sell."AG Mortgage Investment (NYSE: MITT) shares currently have a dividend yield of 12.50%. AG Mortgage Investment Trust, Inc., a real estate investment trust, focuses on investing, acquiring, and managing a portfolio of residential mortgage assets, and other real estate-related securities and financial assets. The company has a P/E ratio of 3.72. The average volume for AG Mortgage Investment has been 376,200 shares per day over the past 30 days. AG Mortgage Investment has a market cap of $716.5 million and is part of the real estate industry. Shares are up 9% year to date as of the close of trading on Monday. TheStreet Ratings rates AG Mortgage Investment as a sell. Among the areas we feel are negative, one of the most important has been the company's poor growth in earnings per share. Highlights from the ratings report include:
- AG MORTGAGE INVESTMENT TRUST's earnings per share declined by 36.4% 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, 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 56.4% in earnings ($3.20 versus $7.34).
- The gross profit margin for AG MORTGAGE INVESTMENT TRUST is currently very high, coming in at 88.50%. 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 33.68% compares favorably to the industry average.
- MITT's share price has surged by 26.70% over the past year, reflecting the market's general trend, despite their weak earnings growth during the last quarter. 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 53.1% when compared to the same quarter one year prior, rising from $10.95 million to $16.77 million.
- You can view the full AG Mortgage Investment Ratings Report.
- The debt-to-equity ratio is very high at 2.26 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.36, which clearly demonstrates the inability to cover short-term cash needs.
- 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 Independent Power Producers & Energy Traders industry and the overall market, ATLANTIC POWER CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- AT'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 31.48%, 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.
- ATLANTIC POWER CORP reported significant earnings per share improvement 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, ATLANTIC POWER CORP swung to a loss, reporting -$0.42 versus $0.01 in the prior year.
- 38.90% is the gross profit margin for ATLANTIC POWER CORP which we consider to be strong. Regardless of AT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AT's net profit margin of -4.81% significantly underperformed when compared to the industry average.
- You can view the full Atlantic Power Corporation Ratings Report.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 84.3% when compared to the same quarter one year ago, falling from -$17.65 million to -$32.53 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NORDIC AMERICAN TANKERS LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for NORDIC AMERICAN TANKERS LTD is currently extremely low, coming in at 3.40%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -72.83% is significantly below that of the industry average.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 33.44%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 64.86% compared to the year-earlier 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.
- NORDIC AMERICAN TANKERS LTD has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, NORDIC AMERICAN TANKERS LTD continued to lose money by earning -$1.38 versus -$1.53 in the prior year. This year, the market expects an improvement in earnings (-$1.16 versus -$1.38).
- You can view the full Nordic American Tankers Ratings Report.
- Our dividend calendar.