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." Ship Finance International (NYSE: SFL) shares currently have a dividend yield of 10.20%. Ship Finance International Limited, through its subsidiaries, engages in the ownership and operation of vessels and offshore related assets in Bermuda, Cyprus, Malta, Liberia, Norway, Singapore, the United Kingdom, and the Marshall Islands. The company has a P/E ratio of 6.89. The average volume for Ship Finance International has been 666,300 shares per day over the past 30 days. Ship Finance International has a market cap of $1.4 billion and is part of the transportation industry. Shares are down 8.1% year to date as of the close of trading on Thursday. TheStreet Ratings rates Ship Finance International as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity. Highlights from the ratings report include:
- Net operating cash flow has significantly increased by 57.92% to $28.22 million when compared to the same quarter last year. In addition, SHIP FINANCE INTL LTD has also vastly surpassed the industry average cash flow growth rate of -15.63%.
- The gross profit margin for SHIP FINANCE INTL LTD is rather high; currently it is at 63.79%. Regardless of SFL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SFL's net profit margin of 37.98% significantly outperformed against the industry.
- SFL, with its decline in revenue, underperformed when compared the industry average of 6.4%. Since the same quarter one year prior, revenues fell by 21.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The debt-to-equity ratio of 1.45 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, SFL has a quick ratio of 0.56, this demonstrates the lack of ability of the company to cover short-term liquidity 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, SHIP FINANCE INTL LTD's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full Ship Finance International Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 1660.3% when compared to the same quarter one year prior, rising from $1.96 million to $34.47 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 12.3%. Since the same quarter one year prior, revenues slightly increased by 4.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- BGC PARTNERS INC 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, BGC PARTNERS INC reported lower earnings of $0.16 versus $0.19 in the prior year. This year, the market expects an improvement in earnings ($0.49 versus $0.16).
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, BGC PARTNERS INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Net operating cash flow has decreased to $52.51 million or 44.94% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full BGC Partners Ratings Report.
- ABR's revenue growth has slightly outpaced the industry average of 10.8%. Since the same quarter one year prior, revenues rose by 19.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- ARBOR REALTY TRUST INC 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, ARBOR REALTY TRUST INC turned its bottom line around by earning $0.64 versus -$1.53 in the prior year. For the next year, the market is expecting a contraction of 37.5% in earnings ($0.40 versus $0.64).
- 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 73.3% when compared to the same quarter one year ago, falling from $15.55 million to $4.15 million.
- You can view the full Arbor Realty Ratings Report.
- Our dividend calendar.