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."Town Sports International Holdings (NASDAQ: CLUB) shares currently have a dividend yield of 7.20%. Town Sports International Holdings, Inc., together with its subsidiaries, owns and operates fitness clubs in the northeast and mid-Atlantic regions of the United States. The company has a P/E ratio of 17.78. The average volume for Town Sports International Holdings has been 115,400 shares per day over the past 30 days. Town Sports International Holdings has a market cap of $214.3 million and is part of the leisure industry. Shares are down 39.8% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Town Sports International Holdings as a hold. Among the primary strengths of the company is its generally strong cash flow from operations. At the same time, however, we also find weaknesses including unimpressive growth in net income, poor profit margins and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Net operating cash flow has slightly increased to $16.91 million or 4.97% when compared to the same quarter last year. In addition, TOWN SPORTS INTL HOLDINGS has also vastly surpassed the industry average cash flow growth rate of -57.23%.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 5.4%. Since the same quarter one year prior, revenues slightly dropped by 0.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- In its most recent trading session, CLUB 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. 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.
- 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 Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 53.4% when compared to the same quarter one year ago, falling from -$0.45 million to -$0.70 million.
- The gross profit margin for TOWN SPORTS INTL HOLDINGS is rather low; currently it is at 21.89%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -0.61% is significantly below that of the industry average.
- You can view the full Town Sports International Holdings Ratings Report.
- The gross profit margin for CAPSTEAD MORTGAGE CORP is currently very high, coming in at 93.21%. Regardless of CMO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CMO's net profit margin of 63.18% significantly outperformed against the industry.
- CAPSTEAD MORTGAGE CORP has improved earnings per share by 12.9% 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, CAPSTEAD MORTGAGE CORP reported lower earnings of $0.93 versus $1.50 in the prior year. This year, the market expects an improvement in earnings ($1.40 versus $0.93).
- In its most recent trading session, CMO 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CAPSTEAD MORTGAGE CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Capstead Mortgage Corporation Ratings Report.
- The gross profit margin for SHIP FINANCE INTL LTD is rather high; currently it is at 56.68%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, SFL's net profit margin of 25.52% significantly outperformed against the industry.
- 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.
- SFL, with its decline in revenue, slightly underperformed the industry average of 3.8%. Since the same quarter one year prior, revenues slightly dropped by 7.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The debt-to-equity ratio of 1.46 is relatively high when compared with the industry average, suggesting a need for better debt level management.
- 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, SHIP FINANCE INTL LTD'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 Ship Finance International Ratings Report.
- Our dividend calendar.