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." American Capital Mortgage Investment (NASDAQ: MTGE) shares currently have a dividend yield of 12.90%. American Capital Mortgage Investment Corp. operates as a real estate investment trust (REIT) in the United States. The average volume for American Capital Mortgage Investment has been 650,900 shares per day over the past 30 days. American Capital Mortgage Investment has a market cap of $1.1 billion and is part of the real estate industry. Shares are up 15.5% year-to-date as of the close of trading on Monday. TheStreet Ratings rates American Capital Mortgage Investment as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share. Highlights from the ratings report include:
- 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 134.2% when compared to the same quarter one year ago, falling from $50.39 million to -$17.25 million.
- 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN CAPITAL MTG INV CP's return on equity significantly trails that of both the industry average and the S&P 500.
- The share price of AMERICAN CAPITAL MTG INV CP has not done very well: it is down 22.06% 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. 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.
- AMERICAN CAPITAL MTG INV CP 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, AMERICAN CAPITAL MTG INV CP swung to a loss, reporting -$1.58 versus $8.40 in the prior year. This year, the market expects an improvement in earnings ($2.68 versus -$1.58).
- MTGE, with its very weak revenue results, has greatly underperformed against the industry average of 6.3%. Since the same quarter one year prior, revenues plummeted by 142.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full American Capital Mortgage Investment Ratings Report.
- 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. Compared to other companies in the Chemicals industry and the overall market, TRONOX LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for TRONOX LTD is currently extremely low, coming in at 9.17%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -1.60% is significantly below that of the industry average.
- The debt-to-equity ratio of 1.08 is relatively high when compared with the industry average, suggesting a need for better debt level management. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 4.92, which shows the ability to cover short-term cash needs.
- TROX, with its decline in revenue, underperformed when compared the industry average of 13.6%. Since the same quarter one year prior, revenues slightly dropped by 9.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- TRONOX LTD reported significant earnings per share improvement in the most recent quarter compared to 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, TRONOX LTD swung to a loss, reporting -$1.10 versus $13.25 in the prior year. This year, the market expects an improvement in earnings ($0.07 versus -$1.10).
- You can view the full Tronox Ratings Report.
- 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. 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.
- 41.88% is the gross profit margin for CARLYLE GROUP LP which we consider to be strong. Regardless of CG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CG's net profit margin of 4.35% is significantly lower than the industry average.
- CARLYLE GROUP LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, CARLYLE GROUP LP increased its bottom line by earning $1.80 versus $0.31 in the prior year. This year, the market expects an improvement in earnings ($3.15 versus $1.80).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 494.2% when compared to the same quarter one year prior, rising from $12.00 million to $71.30 million.
- CG's very impressive revenue growth greatly exceeded the industry average of 16.7%. Since the same quarter one year prior, revenues leaped by 117.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- You can view the full Carlyle Group Ratings Report.
- Our dividend calendar.