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."Apollo Residential Mortgage (NYSE: AMTG) shares currently have a dividend yield of 15.30%. 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 2.83. The average volume for Apollo Residential Mortgage has been 625,600 shares per day over the past 30 days. Apollo Residential Mortgage has a market cap of $587.9 million and is part of the real estate industry. Shares are down 9.5% year to date as of the close of trading on Friday. 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.
- In its most recent trading session, AMTG 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.
- 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 -16.35%.
- You can view the full Apollo Residential Mortgage Ratings Report.
- OAK, with its decline in revenue, underperformed when compared the industry average of 6.3%. Since the same quarter one year prior, revenues fell by 20.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- 40.60% is the gross profit margin for OAKTREE CAPITAL GROUP LLC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 12.48% trails the industry average.
- Net operating cash flow has increased to $2,257.11 million or 11.23% when compared to the same quarter last year. In addition, OAKTREE CAPITAL GROUP LLC has also vastly surpassed the industry average cash flow growth rate of -324.31%.
- 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, OAKTREE CAPITAL GROUP LLC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- This stock has increased by 44.98% over the past year, outperforming the rise in the S&P 500 Index during the same period. Despite the fact that the stock's value has already enjoyed nice gains in the past year, we feel that the risks surrounding an investment in this stock outweigh any potential future returns.
- You can view the full Oaktree Capital Group Ratings Report.
- ENCANA CORP 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. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, ENCANA CORP swung to a loss, reporting -$3.79 versus $0.15 in the prior year.
- 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 3691.7% when compared to the same quarter one year ago, falling from $12.00 million to -$431.00 million.
- 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, ENCANA CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for ENCANA CORP is currently lower than what is desirable, coming in at 33.40%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -40.69% is significantly below that of the industry average.
- Net operating cash flow has decreased to $338.00 million or 45.21% 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 Encana Ratings Report.
- Our dividend calendar.