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." PennyMac Mortgage Investment (NYSE: PMT) shares currently have a dividend yield of 9.90%. 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 8.04. The average volume for PennyMac Mortgage Investment has been 701,300 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 3.6% year-to-date as of the close of trading on Tuesday. 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 8.95% 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 3.1% in earnings ($2.93 versus $3.02).
- You can view the full PennyMac Mortgage Investment Ratings Report.
- Net operating cash flow has slightly increased to $152.50 million or 2.28% when compared to the same quarter last year. In addition, TECO ENERGY INC has also vastly surpassed the industry average cash flow growth rate of -71.65%.
- Despite the stagnant revenue growth, the company outperformed against the industry average of 32.7%. Since the same quarter one year prior, revenues have remained constant. Even though the company's revenue remained stagnant, the earnings per share decreased.
- TECO ENERGY INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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, TECO ENERGY INC reported lower earnings of $0.92 versus $1.13 in the prior year. This year, the market expects an improvement in earnings ($1.02 versus $0.92).
- 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 Multi-Utilities industry. The net income has decreased by 6.9% when compared to the same quarter one year ago, dropping from $45.10 million to $42.00 million.
- The debt-to-equity ratio of 1.29 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, TE has a quick ratio of 0.62, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full TECO Energy Ratings Report.
- Net operating cash flow has significantly increased by 65.96% to -$4,785.00 million when compared to the same quarter last year. In addition, BANK OF MONTREAL has also vastly surpassed the industry average cash flow growth rate of -14.53%.
- The gross profit margin for BANK OF MONTREAL is currently very high, coming in at 83.68%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, BMO's net profit margin of 20.02% significantly trails the industry average.
- Despite the weak revenue results, BMO has outperformed against the industry average of 17.8%. Since the same quarter one year prior, revenues slightly dropped by 1.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- In its most recent trading session, BMO 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. 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'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 Commercial Banks industry and the overall market on the basis of return on equity, BANK OF MONTREAL has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full Bank of Montreal Ratings Report.
- Our dividend calendar.