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." Capstead Mortgage Corporation (NYSE: CMO) shares currently have a dividend yield of 10.30%. Capstead Mortgage Corporation operates as a real estate investment trust in the United States. The company has a P/E ratio of 13.73. The average volume for Capstead Mortgage Corporation has been 1,301,500 shares per day over the past 30 days. Capstead Mortgage Corporation has a market cap of $1.2 billion and is part of the real estate industry. Shares are up 5.3% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Capstead Mortgage Corporation 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 stock price during the past year. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- The gross profit margin for CAPSTEAD MORTGAGE CORP is currently very high, coming in at 91.38%. Regardless of CMO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CMO's net profit margin of 52.93% significantly outperformed against the industry.
- The revenue fell significantly faster than the industry average of 9.6%. Since the same quarter one year prior, revenues fell by 26.7%. Weakness in the company's revenue seems to have hurt the 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, CAPSTEAD MORTGAGE CORP's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $67.42 million or 19.23% 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 Capstead Mortgage Corporation Ratings Report.
- The revenue growth greatly exceeded the industry average of 5.4%. Since the same quarter one year prior, revenues rose by 49.9%. 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.
- Net operating cash flow has increased to $153.06 million or 14.84% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 1.10%.
- Compared to its closing price of one year ago, MWE's share price has jumped by 30.26%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- The gross profit margin for MARKWEST ENERGY PARTNERS LP is currently lower than what is desirable, coming in at 30.61%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -5.61% is significantly below that of the industry average.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 64.6% when compared to the same quarter one year ago, falling from -$14.34 million to -$23.60 million.
- You can view the full MarkWest Energy Partners Ratings Report.
- The revenue growth came in higher than the industry average of 9.6%. Since the same quarter one year prior, revenues rose by 20.2%. 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.
- The gross profit margin for INVESCO MORTGAGE CAPITAL INC is currently very high, coming in at 92.31%. Regardless of IVR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, IVR's net profit margin of -3.45% significantly underperformed when compared to the industry average.
- INVESCO MORTGAGE CAPITAL 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. 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, INVESCO MORTGAGE CAPITAL INC reported lower earnings of $2.89 versus $3.45 in the prior year. For the next year, the market is expecting a contraction of 22.5% in earnings ($2.24 versus $2.89).
- 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 107.0% when compared to the same quarter one year ago, falling from $85.75 million to -$5.97 million.
- You can view the full Invesco Mortgage Capital Ratings Report.
- Our dividend calendar.