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." Apollo Residential Mortgage (NYSE: AMTG) shares currently have a dividend yield of 15.40%. Apollo Residential Mortgage, Inc. operates as a residential real estate trust that invests in, finances, and manages residential mortgage assets in the United States. Its investment portfolio includes agency and non-agency residential mortgage-backed securities. The company has a P/E ratio of 2.84. The average volume for Apollo Residential Mortgage has been 648,300 shares per day over the past 30 days. Apollo Residential Mortgage has a market cap of $582.1 million and is part of the real estate industry. Shares are down 10.4% year to date as of the close of trading on Thursday. TheStreet Ratings rates Apollo Residential Mortgage as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share and unimpressive growth in net income. Highlights from the ratings report include:
- APOLLO RESIDENTIAL MTG INC 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. For the next year, the market is expecting a contraction of 66.4% in earnings ($2.75 versus $8.19).
- 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 significantly decreased by 73.5% when compared to the same quarter one year ago, falling from $20.12 million to $5.34 million.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Regardless of the rise in share value over the previous year, we feel that the risks involved in investing in this stock do not compensate for any future upside potential.
- The gross profit margin for APOLLO RESIDENTIAL MTG INC is currently very high, coming in at 85.30%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, AMTG's net profit margin of 13.95% significantly trails the industry average.
- Net operating cash flow has significantly increased by 161.21% to $19.12 million when compared to the same quarter last year. In addition, APOLLO RESIDENTIAL MTG INC has also vastly surpassed the industry average cash flow growth rate of -16.08%.
- You can view the full Apollo Residential Mortgage Ratings Report.