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 5 stocks with substantial yields, that ultimately, we have rated "Hold." Redwood (NYSE: RWT) shares currently have a dividend yield of 6.10%. Redwood Trust, Inc. engages in investing, financing, and managing real estate-related assets. The company has a P/E ratio of 7.72. The average volume for Redwood has been 1,082,800 shares per day over the past 30 days. Redwood has a market cap of $1.5 billion and is part of the real estate industry. Shares are up 10.1% year to date as of the close of trading on Friday. TheStreet Ratings rates Redwood as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall. Highlights from the ratings report include:
- Powered by its strong earnings growth of 195.83% and other important driving factors, this stock has surged by 25.28% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- REDWOOD TRUST INC 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 two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, REDWOOD TRUST INC increased its bottom line by earning $1.59 versus $0.31 in the prior year. This year, the market expects an improvement in earnings ($1.83 versus $1.59).
- The gross profit margin for REDWOOD TRUST INC is rather high; currently it is at 64.70%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, RWT's net profit margin of 113.60% significantly outperformed against the industry.
- RWT, with its decline in revenue, underperformed when compared the industry average of 10.8%. Since the same quarter one year prior, revenues slightly dropped by 3.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- Net operating cash flow has significantly decreased to -$455.13 million or 3330.18% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Redwood Ratings Report.