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 3 stocks with substantial yields, that ultimately, we have rated "Hold."Annaly Capital Management (NYSE: NLY) shares currently have a dividend yield of 11.00%. Annaly Mortgage Management, Inc. is a self-advised, self-managed real estate investment trust. The company has a P/E ratio of 3.19. The average volume for Annaly Capital Management has been 13,440,200 shares per day over the past 30 days. Annaly Capital Management has a market cap of $10.3 billion and is part of the real estate industry. Shares are up 8.9% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Annaly Capital Management as a hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ANNALY CAPITAL MANAGEMENT's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for ANNALY CAPITAL MANAGEMENT is currently very high, coming in at 91.13%. Regardless of NLY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NLY's net profit margin of 29.04% compares favorably to the industry average.
- 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 14.4% when compared to the same quarter one year ago, dropping from $224.76 million to $192.46 million.
- Net operating cash flow has significantly decreased to $810.87 million or 77.46% 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 Annaly Capital Management Ratings Report.
- Net operating cash flow has increased to -$12.61 million or 25.68% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 2.01%.
- The debt-to-equity ratio is somewhat low, currently at 0.82, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.36 is very weak and demonstrates a lack of ability to pay short-term obligations.
- WGL, with its decline in revenue, underperformed when compared the industry average of 17.4%. 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.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Gas Utilities industry and the overall market on the basis of return on equity, WGL HOLDINGS INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for WGL HOLDINGS INC is currently extremely low, coming in at 8.83%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.78% trails that of the industry average.
- You can view the full WGL Holdings Ratings Report.
- PLUM CREEK TIMBER CO 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. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PLUM CREEK TIMBER CO INC increased its bottom line by earning $1.31 versus $1.25 in the prior year. This year, the market expects an improvement in earnings ($1.40 versus $1.31).
- PCL, with its decline in revenue, underperformed when compared the industry average of 7.3%. Since the same quarter one year prior, revenues slightly dropped by 6.5%. 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, PLUM CREEK TIMBER CO INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- 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 49.4% when compared to the same quarter one year ago, falling from $79.00 million to $40.00 million.
- You can view the full Plum Creek Timber Ratings Report.
- Our dividend calendar.