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 "Sell." American Capital Mortgage Investment (NASDAQ: MTGE) shares currently have a dividend yield of 13.40%. 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 4.48. The average volume for American Capital Mortgage Investment has been 1,066,600 shares per day over the past 30 days. American Capital Mortgage Investment has a market cap of $1.2 billion and is part of the real estate industry. Shares are down 11.1% year to date as of the close of trading on Wednesday. TheStreet Ratings rates American Capital Mortgage Investment as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share. Highlights from the ratings report include:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. 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.
- The share price of AMERICAN CAPITAL MTG INV CP has not done very well: it is down 18.43% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.
- 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).
- MTGE, with its very weak revenue results, has greatly underperformed against the industry average of 10.8%. 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.
- When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN CAPITAL MTG INV CP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full American Capital Mortgage Investment Ratings Report.