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." Capstead Mortgage Corporation (NYSE: CMO) shares currently have a dividend yield of 10.40%. Capstead Mortgage Corporation operates as a real estate investment trust in the United States. The company has a P/E ratio of 8.74 The average volume for Capstead Mortgage Corporation has been 886,600 shares per day over the past 30 days Capstead Mortgage Corporation has a market cap of $1.1 billion and is part of the real estate industry Shares are down 1.1% year to date as of the close of trading on Friday 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, expanding profit margins and good cash flow from operations. 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 94.81%. 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 12.3%. 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.
- CAPSTEAD MORTGAGE CORP's earnings per share declined by 29.5% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, CAPSTEAD MORTGAGE CORP reported lower earnings of $1.50 versus $1.75 in the prior year. For the next year, the market is expecting a contraction of 13.0% in earnings ($1.31 versus $1.50).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of 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.
- You can view the full Capstead Mortgage Corporation Ratings Report.