3 Hold-Rated Dividend Stocks: CMO, OFC, HTS

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 "Hold."

Capstead Mortgage Corporation

Dividend Yield: 10.50%

Capstead Mortgage Corporation (NYSE: CMO) shares currently have a dividend yield of 10.50%.

Capstead Mortgage Corporation operates as a real estate investment trust in the United States. The company has a P/E ratio of 11.80.

The average volume for Capstead Mortgage Corporation has been 1,072,900 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 up 3.2% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Capstead Mortgage Corporation as a hold. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels and expanding profit margins. 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 94.62%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 57.92% significantly outperformed against the industry average.
  • CMO, with its decline in revenue, underperformed when compared the industry average of 7.0%. Since the same quarter one year prior, revenues fell by 21.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • 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 31.0% when compared to the same quarter one year ago, falling from $43.34 million to $29.89 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CAPSTEAD MORTGAGE CORP's return on equity is below that of both the industry average and the S&P 500.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

Corporate Office Properties

Dividend Yield: 4.40%

Corporate Office Properties (NYSE: OFC) shares currently have a dividend yield of 4.40%.

Owns, manages, leases, acquires and develops suburban office properties located in the Greater Washington DC and other markets. At Dec. 31, 2005, this self-managed real estate investment trust owned 165 operating office properties with 13.7 million rentable square feet and several land parcels.

The average volume for Corporate Office Properties has been 642,800 shares per day over the past 30 days. Corporate Office Properties has a market cap of $2.2 billion and is part of the real estate industry. Shares are up 1.1% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Corporate Office Properties as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and poor profit margins.

Highlights from the ratings report include:
  • OFC's revenue growth has slightly outpaced the industry average of 7.0%. Since the same quarter one year prior, revenues rose by 15.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • The gross profit margin for CORP OFFICE PPTYS TR INC is currently lower than what is desirable, coming in at 30.21%. Regardless of OFC's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, OFC's net profit margin of -6.84% significantly underperformed when compared to the industry average.
  • 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 190.8% when compared to the same quarter one year ago, falling from $10.75 million to -$9.77 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

Hatteras Financial Corporation

Dividend Yield: 14.60%

Hatteras Financial Corporation (NYSE: HTS) shares currently have a dividend yield of 14.60%.

Hatteras Financial Corp. operates as an externally-managed mortgage real estate investment trust (REIT) in the United States. The company has a P/E ratio of 6.05.

The average volume for Hatteras Financial Corporation has been 1,260,100 shares per day over the past 30 days. Hatteras Financial Corporation has a market cap of $1.9 billion and is part of the real estate industry. Shares are down 22.6% year to date as of the close of trading on Wednesday.

TheStreet Ratings rates Hatteras Financial Corporation as a hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, unimpressive growth in net income and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The gross profit margin for HATTERAS FINANCIAL CORP is currently very high, coming in at 94.41%. Regardless of HTS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HTS's net profit margin of 56.92% significantly outperformed against the industry.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, HATTERAS FINANCIAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • HATTERAS FINANCIAL CORP's earnings per share declined by 27.5% 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, HATTERAS FINANCIAL CORP reported lower earnings of $3.65 versus $3.96 in the prior year. For the next year, the market is expecting a contraction of 32.5% in earnings ($2.47 versus $3.65).
  • 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 decreased by 20.6% when compared to the same quarter one year ago, dropping from $89.14 million to $70.74 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

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