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." Home Loan Servicing Solutions (NASDAQ: HLSS) shares currently have a dividend yield of 9.00%. Home Loan Servicing Solutions, Ltd., through its subsidiaries, engages in the acquisition of mortgage servicing assets. Its mortgage servicing assets consists of servicing advances, mortgage servicing rights, rights to mortgage servicing rights, and other related assets. The company has a P/E ratio of 10.29. The average volume for Home Loan Servicing Solutions has been 420,700 shares per day over the past 30 days. Home Loan Servicing Solutions has a market cap of $1.4 billion and is part of the real estate industry. Shares are down 13.7% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Home Loan Servicing Solutions as a sell. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- In its most recent trading session, HLSS 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 net income growth from the same quarter one year ago, has significantly underperformed compared to the Thrifts & Mortgage Finance industry average, but is greater than that of the S&P 500. The net income increased by 431.3% when compared to the same quarter one year prior, rising from $6.57 million to $34.92 million.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Thrifts & Mortgage Finance industry and the overall market, HOME LOAN SERVICING SOLTNS's return on equity is below that of both the industry average and the S&P 500.
- The gross profit margin for HOME LOAN SERVICING SOLTNS is currently very high, coming in at 95.21%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 46.32% is above that of the industry average.
- Net operating cash flow has significantly increased by 49924.76% to $160.93 million when compared to the same quarter last year. In addition, HOME LOAN SERVICING SOLTNS has also vastly surpassed the industry average cash flow growth rate of -19.17%.
- You can view the full Home Loan Servicing Solutions Ratings Report.