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." MFA Financial (NYSE: MFA) shares currently have a dividend yield of 12.00%. MFA Financial, Inc., a real estate investment trust (REIT), invests in residential agency and non-agency mortgage-backed securities (MBS). The company has a P/E ratio of 9.25. The average volume for MFA Financial has been 3,459,300 shares per day over the past 30 days. MFA Financial has a market cap of $2.7 billion and is part of the real estate industry. Shares are down 9.9% year to date as of the close of trading on Friday. TheStreet Ratings rates MFA Financial as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, notable return on equity and expanding profit margins. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good. Highlights from the ratings report include:
- The net income increased by 0.9% when compared to the same quarter one year prior, going from $74.77 million to $75.47 million.
- Since the same quarter one year prior, revenues slightly dropped by 0.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Compared to its price level of one year ago, MFA is down 12.56% to its most recent closing price of 7.31. Looking ahead, our view is that this company's fundamentals will not have much impact either way, allowing the stock to generally move up or down based on the push and pull of the broad market.
- MFA FINANCIAL INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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, MFA FINANCIAL INC reported lower earnings of $0.83 versus $0.91 in the prior year. For the next year, the market is expecting a contraction of 4.8% in earnings ($0.79 versus $0.83).
- You can view the full MFA Financial Ratings Report.
- Net operating cash flow has slightly increased to $111.00 million or 9.90% when compared to the same quarter last year.
- 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.
- Even though the current debt-to-equity ratio is 1.25, it is still below the industry average, suggesting that this level of debt is acceptable within the Electric Utilities industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.35 is very low and demonstrates very weak liquidity.
- The gross profit margin for PEPCO HOLDINGS INC is rather low; currently it is at 24.88%. Regardless of POM's low profit margin, it has managed to increase from the same period last year.
- You can view the full Pepco Holdings Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income increased by 5.3% when compared to the same quarter one year prior, going from $243.00 million to $256.00 million.
- 37.29% is the gross profit margin for WILLIAMS PARTNERS LP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 14.82% is above that of the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 6.5%. Since the same quarter one year prior, revenues slightly dropped by 5.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, WILLIAMS PARTNERS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- In its most recent trading session, WPZ has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- You can view the full Williams Partners Ratings Report.
- Our dividend calendar.