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 "Hold." PennyMac Mortgage Investment (NYSE: PMT) shares currently have a dividend yield of 10.40%. PennyMac Mortgage Investment Trust, a specialty finance company, through its subsidiaries, invests primarily in residential mortgage loans and mortgage-related assets. The company operates in two segments, Correspondent Lending and Investment Activities. The company has a P/E ratio of 6.40. The average volume for PennyMac Mortgage Investment has been 1,121,600 shares per day over the past 30 days. PennyMac Mortgage Investment has a market cap of $1.5 billion and is part of the real estate industry. Shares are down 11.3% year to date as of the close of trading on Thursday. TheStreet Ratings rates PennyMac Mortgage Investment as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, 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:
- PMT's very impressive revenue growth greatly exceeded the industry average of 10.7%. Since the same quarter one year prior, revenues leaped by 101.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- 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, PENNYMAC MORTGAGE INVEST TR's return on equity exceeds that of both the industry average and the S&P 500.
- The gross profit margin for PENNYMAC MORTGAGE INVEST TR is rather high; currently it is at 68.09%. Regardless of PMT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PMT's net profit margin of 42.01% significantly outperformed against the industry.
- PMT has underperformed the S&P 500 Index, declining 6.48% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full PennyMac Mortgage Investment Ratings Report.