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." ARMOUR Residential REIT (NYSE: ARR) shares currently have a dividend yield of 15.30%. ARMOUR Residential REIT, Inc. is a real estate investment trust launched and managed by ARMOUR Residential Management LLC. It invests in the real estate markets of the United States. The company has a P/E ratio of 2.29. The average volume for ARMOUR Residential REIT has been 4,838,900 shares per day over the past 30 days. ARMOUR Residential REIT has a market cap of $1.5 billion and is part of the real estate industry. Shares are down 39.6% year to date as of the close of trading on Friday. TheStreet Ratings rates ARMOUR Residential REIT as a hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to the other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ARMOUR RESIDENTIAL REIT INC's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- ARR, with its very weak revenue results, has greatly underperformed against the industry average of 9.5%. Since the same quarter one year prior, revenues plummeted by 216.3%. Weakness in the company's revenue seems to have hurt the 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 518.5% when compared to the same quarter one year ago, falling from $54.94 million to -$229.94 million.
- Net operating cash flow has decreased to $86.27 million or 18.52% 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 ARMOUR Residential REIT Ratings Report.