Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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."Diana Containerships (NASDAQ: DCIX) shares currently have a dividend yield of 16.60%. Diana Containerships Inc., a shipping company, owns and operates containerships. It is involved in the seaborne transportation activities. As of August 23, 2013, its fleet consisted of nine container vessels comprising one Post-Panamax and eight Panamax vessels. The average volume for Diana Containerships has been 234,900 shares per day over the past 30 days. Diana Containerships has a market cap of $122.5 million and is part of the transportation industry. Shares are down 40.3% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Diana Containerships as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, 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 Marine industry. The net income has significantly decreased by 145.1% when compared to the same quarter one year ago, falling from $1.59 million to -$0.72 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Marine industry and the overall market, DIANA CONTAINERSHIPS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $6.47 million or 29.12% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 35.16%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 140.00% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- DIANA CONTAINERSHIPS INC has experienced 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, DIANA CONTAINERSHIPS INC increased its bottom line by earning $0.24 versus $0.16 in the prior year. For the next year, the market is expecting a contraction of 104.2% in earnings (-$0.01 versus $0.24).
- You can view the full Diana Containerships Ratings Report.
- The debt-to-equity ratio is very high at 45.89 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, LGP has a quick ratio of 0.52, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- The gross profit margin for LEHIGH GAS PARTNERS LP is currently extremely low, coming in at 3.51%. Regardless of LGP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.00% trails the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 5.5%. Since the same quarter one year prior, revenues slightly dropped by 3.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- LEHIGH GAS PARTNERS LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.22 versus $0.23).
- 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 1194.2% when compared to the same quarter one year prior, rising from -$0.45 million to $4.92 million.
- You can view the full Lehigh Gas Partners Ratings Report.
- ANWORTH MTG ASSET CORP's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, ANWORTH MTG ASSET CORP reported lower earnings of $0.68 versus $0.90 in the prior year. For the next year, the market is expecting a contraction of 26.5% in earnings ($0.50 versus $0.68).
- 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 decreased by 18.0% when compared to the same quarter one year ago, dropping from $21.95 million to $18.01 million.
- Looking at the price performance of ANH's shares over the past 12 months, there is not much good news to report: the stock is down 26.80%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ANWORTH MTG ASSET CORP's return on equity is below that of both the industry average and the S&P 500.
- ANH, with its decline in revenue, underperformed when compared the industry average of 9.5%. Since the same quarter one year prior, revenues slightly dropped by 5.8%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- You can view the full Anworth Mortgage Asset Corporation Ratings Report.
- Our dividend calendar.