What To Hold: 5 Hold-Rated Dividend Stocks KFN, PMT, CTL, VGR, WGL

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 5 stocks with substantial yields, that ultimately, we have rated "Hold."

KKR Financial Holdings

Dividend Yield: 7.20%

KKR Financial Holdings (NYSE: KFN) shares currently have a dividend yield of 7.20%.

KKR Financial Holdings LLC, together with its subsidiaries, operates as a specialty finance company with expertise in a range of asset classes. The company has a P/E ratio of 9.35.

The average volume for KKR Financial Holdings has been 2,281,500 shares per day over the past 30 days. KKR Financial Holdings has a market cap of $2.5 billion and is part of the real estate industry. Shares are up 0.7% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates KKR Financial Holdings as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels and expanding profit margins. 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 generally higher debt management risk.

Highlights from the ratings report include:
  • KFN's revenue growth trails the industry average of 13.4%. Since the same quarter one year prior, revenues slightly increased by 2.2%. 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.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • 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 Financial Services industry. The net income has decreased by 10.6% when compared to the same quarter one year ago, dropping from $77.01 million to $68.88 million.
  • The debt-to-equity ratio is very high at 2.38 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

PennyMac Mortgage Investment

Dividend Yield: 10.00%

PennyMac Mortgage Investment (NYSE: PMT) shares currently have a dividend yield of 10.00%.

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 7.95.

The average volume for PennyMac Mortgage Investment has been 693,800 shares per day over the past 30 days. PennyMac Mortgage Investment has a market cap of $1.7 billion and is part of the real estate industry. Shares are up 3.1% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates PennyMac Mortgage Investment 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 net income. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The gross profit margin for PENNYMAC MORTGAGE INVEST TR is rather high; currently it is at 64.48%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 45.25% significantly outperformed against the industry average.
  • 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.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, PMT has underperformed the S&P 500 Index, declining 12.30% from its price level of one year ago. 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.
  • PENNYMAC MORTGAGE INVEST TR's earnings per share declined by 16.9% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, PENNYMAC MORTGAGE INVEST TR reported lower earnings of $3.02 versus $3.08 in the prior year. For the next year, the market is expecting a contraction of 4.1% in earnings ($2.90 versus $3.02).

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

CenturyLink

Dividend Yield: 7.50%

CenturyLink (NYSE: CTL) shares currently have a dividend yield of 7.50%.

CenturyLink, Inc. operates as an integrated telecommunications company in the United States.

The average volume for CenturyLink has been 5,505,700 shares per day over the past 30 days. CenturyLink has a market cap of $17.0 billion and is part of the telecommunications industry. Shares are down 9.6% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates CenturyLink as a hold. Among the primary strengths of the company is its expanding profit margins over time. At the same time, however, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.

Highlights from the ratings report include:
  • The gross profit margin for CENTURYLINK INC is rather high; currently it is at 57.59%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -23.14% is in-line with the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.0%. Since the same quarter one year prior, revenues slightly dropped by 1.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • CENTURYLINK 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, CENTURYLINK INC reported lower earnings of $1.24 versus $1.29 in the prior year. This year, the market expects an improvement in earnings ($2.68 versus $1.24).
  • The debt-to-equity ratio of 1.23 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, CTL has a quick ratio of 0.56, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • 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. Compared to other companies in the Diversified Telecommunication Services industry and the overall market, CENTURYLINK INC's return on equity significantly trails that of both the industry average and the S&P 500.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Vector Group

Dividend Yield: 8.80%

Vector Group (NYSE: VGR) shares currently have a dividend yield of 8.80%.

Vector Group Ltd., through its subsidiaries, engages in the manufacture and sale of cigarettes in the United States. The company operates in Tobacco and Real Estate segments.

The average volume for Vector Group has been 687,300 shares per day over the past 30 days. Vector Group has a market cap of $1.7 billion and is part of the tobacco industry. Shares are up 10.8% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Vector Group as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share and deteriorating net income.

Highlights from the ratings report include:
  • VGR's revenue growth has slightly outpaced the industry average of 3.1%. Since the same quarter one year prior, revenues slightly increased by 2.3%. 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 VECTOR GROUP LTD is rather high; currently it is at 52.96%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -24.63% is in-line with the industry average.
  • Net operating cash flow has increased to $50.05 million or 26.98% when compared to the same quarter last year. Despite an increase in cash flow, VECTOR GROUP LTD's average is still marginally south of the industry average growth rate of 29.76%.
  • VECTOR GROUP LTD 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. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, VECTOR GROUP LTD reported lower earnings of $0.29 versus $0.78 in the prior year.
  • 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 Tobacco industry. The net income has significantly decreased by 305.7% when compared to the same quarter one year ago, falling from $17.93 million to -$36.89 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

WGL Holdings

Dividend Yield: 4.60%

WGL Holdings (NYSE: WGL) shares currently have a dividend yield of 4.60%.

WGL Holdings, Inc., through its subsidiaries, sells and delivers natural gas, and provides energy-related products and services. The company operates in four segments: Regulated Utility, Retail Energy-Marketing, Commercial Energy Systems, and Midstream Energy Services. The company has a P/E ratio of 40.62.

The average volume for WGL Holdings has been 382,900 shares per day over the past 30 days. WGL Holdings has a market cap of $1.9 billion and is part of the utilities industry. Shares are down 8.2% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates WGL Holdings as a hold. The company's strongest point has been its a solid financial position based on a variety of debt and liquidity measures that we have looked at. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:
  • WGL, with its decline in revenue, underperformed when compared the industry average of 17.7%. Since the same quarter one year prior, revenues slightly dropped by 0.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • WGL HOLDINGS 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, WGL HOLDINGS INC reported lower earnings of $1.55 versus $2.71 in the prior year. This year, the market expects an improvement in earnings ($2.25 versus $1.55).
  • WGL's debt-to-equity ratio of 0.82 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that WGL's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.55 is low and demonstrates weak liquidity.
  • 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 Gas Utilities industry. The net income has significantly decreased by 64.0% when compared to the same quarter one year ago, falling from $52.72 million to $18.96 million.
  • The share price of WGL HOLDINGS INC has not done very well: it is down 11.03% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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