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." MFA Financial (NYSE: MFA) shares currently have a dividend yield of 10.80%. MFA Financial, Inc., a real estate investment trust (REIT), invests in residential agency and non-agency mortgage-backed securities (MBS). The company has a P/E ratio of 9.76. The average volume for MFA Financial has been 3,338,800 shares per day over the past 30 days. MFA Financial has a market cap of $2.7 billion and is part of the real estate industry. Shares are up 5.8% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates MFA Financial as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels 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, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 6.8%. Since the same quarter one year prior, revenues slightly increased by 2.1%. 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 MFA FINANCIAL INC is currently very high, coming in at 91.86%. Regardless of MFA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MFA's net profit margin of 53.97% significantly outperformed against the industry.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Real Estate Investment Trusts (REITs) industry. The net income has decreased by 8.7% when compared to the same quarter one year ago, dropping from $78.14 million to $71.33 million.
- 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, MFA FINANCIAL INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full MFA Financial Ratings Report.
- ARCP's very impressive revenue growth greatly exceeded the industry average of 6.8%. Since the same quarter one year prior, revenues leaped by 223.6%. 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 significantly increased by 622.25% to $16.29 million when compared to the same quarter last year. In addition, AMERICAN RLTY CAP PPTY INC has also vastly surpassed the industry average cash flow growth rate of -56.67%.
- The gross profit margin for AMERICAN RLTY CAP PPTY INC is currently extremely low, coming in at 5.92%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, ARCP's net profit margin of -97.00% significantly underperformed when compared to 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 365.4% when compared to the same quarter one year ago, falling from -$12.69 million to -$59.06 million.
- You can view the full American Realty Capital Properties Ratings Report.
- The revenue growth greatly exceeded the industry average of 1.9%. Since the same quarter one year prior, revenues rose by 38.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has significantly increased by 256.66% to $52.36 million when compared to the same quarter last year. In addition, MEMORIAL PRODUCTION PRTRS LP has also vastly surpassed the industry average cash flow growth rate of -48.26%.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
- The debt-to-equity ratio of 1.15 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.47, which clearly demonstrates the inability to cover short-term cash needs.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, MEMORIAL PRODUCTION PRTRS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full Memorial Production Partners Ratings Report.
- Our dividend calendar.