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." PennyMac Mortgage Investment (NYSE: PMT) shares currently have a dividend yield of 10.20%. 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 7.09. The average volume for PennyMac Mortgage Investment has been 878,900 shares per day over the past 30 days. PennyMac Mortgage Investment has a market cap of $1.6 billion and is part of the real estate industry. Shares are down 11.9% year to date as of the close of trading on Wednesday. TheStreet Ratings rates PennyMac Mortgage Investment as a hold. Among the primary strengths of the company is its respectable return on equity which we feel is likely to continue. At the same time, however, we also find weaknesses including unimpressive growth in net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- 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 on the basis of return on equity, PENNYMAC MORTGAGE INVEST TR has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- PENNYMAC MORTGAGE INVEST TR's earnings per share declined by 29.6% in the most recent quarter compared to 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, PENNYMAC MORTGAGE INVEST TR increased its bottom line by earning $3.08 versus $2.37 in the prior year. For the next year, the market is expecting a contraction of 3.9% in earnings ($2.96 versus $3.08).
- In its most recent trading session, PMT has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Real Estate Investment Trusts (REITs) industry. The net income has decreased by 1.7% when compared to the same quarter one year ago, dropping from $40.38 million to $39.70 million.
- You can view the full PennyMac Mortgage Investment Ratings Report.
- 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 Diversified Telecommunication Services industry and the overall market, WINDSTREAM HOLDINGS INC's return on equity exceeds that of both the industry average and the S&P 500.
- Net operating cash flow has increased to $448.10 million or 10.15% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -8.79%.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.1%. Since the same quarter one year prior, revenues slightly dropped by 2.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- 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 Diversified Telecommunication Services industry. The net income has significantly decreased by 34.3% when compared to the same quarter one year ago, falling from $46.60 million to $30.60 million.
- The debt-to-equity ratio is very high at 10.35 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, WIN has a quick ratio of 0.50, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full Windstream Holdings Ratings Report.
- The revenue growth greatly exceeded the industry average of 5.5%. Since the same quarter one year prior, revenues rose by 30.9%. 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.
- 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 43.0% when compared to the same quarter one year prior, rising from $200.00 million to $286.00 million.
- 40.15% is the gross profit margin for KINDER MORGAN INC which we consider to be strong. Regardless of KMI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KMI's net profit margin of 7.61% compares favorably to the industry average.
- KINDER MORGAN INC's earnings per share declined by 12.9% in the most recent quarter compared to 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, KINDER MORGAN INC increased its bottom line by earning $1.22 versus $0.55 in the prior year. For the next year, the market is expecting a contraction of 16.8% in earnings ($1.02 versus $1.22).
- The debt-to-equity ratio is very high at 2.71 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.35, which clearly demonstrates the inability to cover short-term cash needs.
- You can view the full Kinder Morgan Ratings Report.
- Our dividend calendar.