Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. 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."Diana Containerships (NASDAQ: DCIX) shares currently have a dividend yield of 14.70%. Diana Containerships Inc., a shipping company, owns and operates containerships. It is involved in the seaborne transportation activities. As of March 4, 2013, its fleet consisted of 11 Panamax container vessels. The company was founded in 2010 and is based in Athens, Greece. The average volume for Diana Containerships has been 432,600 shares per day over the past 30 days. Diana Containerships has a market cap of $136.9 million and is part of the transportation industry. Shares are down 32.3% year to date as of the close of trading on Thursday. TheStreet Ratings rates Diana Containerships as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share. Highlights from the ratings report include:
- 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 Marine industry. The net income has significantly decreased by 1802.3% when compared to the same quarter one year ago, falling from $1.87 million to -$31.80 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 Marine industry and the overall market, DIANA CONTAINERSHIPS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 25.62%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 1337.50% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- DIANA CONTAINERSHIPS 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. 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, DIANA CONTAINERSHIPS INC increased its bottom line by earning $0.24 versus $0.16 in the prior year. For the next year, the market is expecting a contraction of 133.3% in earnings (-$0.08 versus $0.24).
- 43.67% is the gross profit margin for DIANA CONTAINERSHIPS INC which we consider to be strong. Regardless of DCIX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DCIX's net profit margin of -210.07% significantly underperformed when compared to the industry average.
- You can view the full Diana Containerships Ratings Report.
- The debt-to-equity ratio of 1.18 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, ALTV has a quick ratio of 0.61, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- 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 Diversified Telecommunication Services industry and the overall market, ALTEVA's return on equity significantly trails that of both the industry average and the S&P 500.
- ALTV'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 26.89%, 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.
- ALTEVA has improved earnings per share by 31.8% in the most recent quarter compared to 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, ALTEVA reported poor results of -$1.67 versus -$0.54 in the prior year. This year, the market expects an improvement in earnings ($0.09 versus -$1.67).
- The gross profit margin for ALTEVA is rather high; currently it is at 51.05%. 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 -10.76% is in-line with the industry average.
- You can view the full Alteva Ratings Report.
- TRANSALTA 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, TRANSALTA CORP swung to a loss, reporting -$2.72 versus $1.30 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 Independent Power Producers & Energy Traders industry. The net income has significantly decreased by 102.1% when compared to the same quarter one year ago, falling from $96.00 million to -$2.00 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 Independent Power Producers & Energy Traders industry and the overall market, TRANSALTA CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The share price of TRANSALTA CORP has not done very well: it is down 5.54% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Even though the current debt-to-equity ratio is 1.42, it is still below the industry average, suggesting that this level of debt is acceptable within the Independent Power Producers & Energy Traders industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.41 is very low and demonstrates very weak liquidity.
- You can view the full TransAlta Corporation Ratings Report.
- Our dividend calendar.