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." MFA Financial (NYSE: MFA) shares currently have a dividend yield of 11.90%. 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 9.33. The average volume for MFA Financial has been 3,373,400 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 9.1% year to date as of the close of trading on Thursday. TheStreet Ratings rates MFA Financial as a hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, expanding profit margins and increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- The gross profit margin for MFA FINANCIAL INC is currently very high, coming in at 91.33%. Regardless of MFA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MFA's net profit margin of 60.36% significantly outperformed against the industry.
- MFA, 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 0.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, MFA FINANCIAL INC's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $70.08 million or 13.26% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full MFA Financial Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 113.4% when compared to the same quarter one year prior, rising from -$246.74 million to $33.09 million.
- Net operating cash flow has significantly increased by 108.84% to $87.16 million when compared to the same quarter last year. In addition, NUSTAR ENERGY LP has also vastly surpassed the industry average cash flow growth rate of -15.63%.
- NUSTAR ENERGY LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, NUSTAR ENERGY LP swung to a loss, reporting -$2.95 versus $2.79 in the prior year. This year, the market expects an improvement in earnings ($1.08 versus -$2.95).
- The debt-to-equity ratio of 1.03 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, NS maintains a poor quick ratio of 0.90, which illustrates the inability to avoid short-term cash problems.
- NS has underperformed the S&P 500 Index, declining 23.23% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full NuStar Energy L.P Ratings Report.
- HCN's very impressive revenue growth greatly exceeded the industry average of 10.8%. Since the same quarter one year prior, revenues leaped by 53.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- HEALTH CARE REIT 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 year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, HEALTH CARE REIT INC increased its bottom line by earning $0.42 versus $0.34 in the prior year. This year, the market expects an improvement in earnings ($0.66 versus $0.42).
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
- 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, HEALTH CARE REIT INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for HEALTH CARE REIT INC is rather low; currently it is at 21.57%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.19% significantly trails the industry average.
- You can view the full Health Care REIT Ratings Report.
- FE, with its decline in revenue, underperformed when compared the industry average of 16.5%. Since the same quarter one year prior, revenues slightly dropped by 9.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- FIRSTENERGY CORP 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, FIRSTENERGY CORP reported lower earnings of $1.84 versus $2.13 in the prior year. This year, the market expects an improvement in earnings ($3.00 versus $1.84).
- The gross profit margin for FIRSTENERGY CORP is currently lower than what is desirable, coming in at 27.42%. Regardless of FE's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, FE's net profit margin of -4.66% significantly underperformed when compared to the industry average.
- Currently the debt-to-equity ratio of 1.61 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.26, which clearly demonstrates the inability to cover short-term cash needs.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Electric Utilities industry and the overall market on the basis of return on equity, FIRSTENERGY CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full FirstEnergy Ratings Report.
- Our dividend calendar.