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 4 stocks with substantial yields, that ultimately, we have rated "Sell." American Capital Mortgage Investment (NASDAQ: MTGE) shares currently have a dividend yield of 15.90%. American Capital Mortgage Investment Corp. operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 4.30. The average volume for American Capital Mortgage Investment has been 1,234,400 shares per day over the past 30 days. American Capital Mortgage Investment has a market cap of $1.1 billion and is part of the real estate industry. Shares are down 14.6% year to date as of the close of trading on Friday. TheStreet Ratings rates American Capital Mortgage Investment as a sell. Among the areas we feel are negative, one of the most important has been the company's poor growth in earnings per share. Highlights from the ratings report include:
- AMERICAN CAPITAL MTG INV CP 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, AMERICAN CAPITAL MTG INV CP increased its bottom line by earning $8.40 versus $1.72 in the prior year. For the next year, the market is expecting a contraction of 62.4% in earnings ($3.16 versus $8.40).
- The net income has significantly decreased by 268.6% when compared to the same quarter one year ago, falling from $32.23 million to -$54.35 million.
- Since the same quarter one year prior, revenues plummeted by 328.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Compared to where it was trading one year ago, MTGE is down 21.98% to its most recent closing price of 20.13. Looking ahead, our view is that this stock still does not have good upside potential and may even suffer further declines.
- The gross profit margin for AMERICAN CAPITAL MTG INV CP is currently very high, coming in at 102.64%. It has increased from the same quarter the previous year.
- You can view the full American Capital Mortgage Investment Ratings Report.