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." Annaly Capital Management (NYSE: NLY) shares currently have a dividend yield of 13.40%. Annaly Capital Management, Inc. owns, manages, and finances a portfolio of real estate related investments in United States. The company has a P/E ratio of 3.48. The average volume for Annaly Capital Management has been 13,521,000 shares per day over the past 30 days. Annaly Capital Management has a market cap of $11.3 billion and is part of the real estate industry. Shares are down 14.7% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Annaly Capital Management as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, notable return on equity and attractive valuation levels. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 1897.1% when compared to the same quarter one year prior, rising from -$91.16 million to $1,638.21 million.
- 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 Real Estate Investment Trusts (REITs) industry and the overall market, ANNALY CAPITAL MANAGEMENT's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for ANNALY CAPITAL MANAGEMENT is currently very high, coming in at 93.06%. Regardless of NLY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NLY's net profit margin of 174.57% significantly outperformed against the industry.
- ANNALY CAPITAL MANAGEMENT reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, ANNALY CAPITAL MANAGEMENT increased its bottom line by earning $1.69 versus $0.49 in the prior year. For the next year, the market is expecting a contraction of 13.9% in earnings ($1.46 versus $1.69).
- NLY'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 27.21%, 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.
- You can view the full Annaly Capital Management Ratings Report.