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." Arbor Realty (NYSE: ABR) shares currently have a dividend yield of 7.70%. Arbor Realty Trust, Inc. operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 16.92. The average volume for Arbor Realty has been 130,200 shares per day over the past 30 days. Arbor Realty has a market cap of $332.7 million and is part of the real estate industry. Shares are up 1.6% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Arbor Realty as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share. Highlights from the ratings report include:
- 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, ARBOR REALTY TRUST INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- Net operating cash flow has significantly decreased to $0.00 million or 99.96% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- ABR has underperformed the S&P 500 Index, declining 16.01% 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.
- ARBOR REALTY TRUST INC 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. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, ARBOR REALTY TRUST INC reported lower earnings of $0.41 versus $0.65 in the prior year. For the next year, the market is expecting a contraction of 26.8% in earnings ($0.30 versus $0.41).
- 48.90% is the gross profit margin for ARBOR REALTY TRUST INC which we consider to be strong. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 15.17% trails the industry average.
- You can view the full Arbor Realty Ratings Report.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 206.2% when compared to the same quarter one year ago, falling from -$55.16 million to -$168.93 million.
- The debt-to-equity ratio is very high at 2.18 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, EROC has a quick ratio of 0.69, this demonstrates the lack of ability of the company to cover short-term liquidity 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, EAGLE ROCK ENERGY PARTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 46.59%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 179.48% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- EAGLE ROCK ENERGY PARTNRS LP 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, EAGLE ROCK ENERGY PARTNRS LP reported poor results of -$1.81 versus -$1.11 in the prior year. This year, the market expects an improvement in earnings ($0.13 versus -$1.81).
- You can view the full Eagle Rock Energy Partners Ratings Report.
- SXE's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 27.37%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The gross profit margin for SOUTHCROSS ENERGY PRTNRS LP is currently extremely low, coming in at 7.47%. Regardless of SXE's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.38% trails the industry average.
- SXE's debt-to-equity ratio of 0.85 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.90 is weak.
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, SOUTHCROSS ENERGY PRTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has increased to $12.51 million or 35.09% when compared to the same quarter last year. In addition, SOUTHCROSS ENERGY PRTNRS LP has also vastly surpassed the industry average cash flow growth rate of -23.43%.
- You can view the full Southcross Energy Partners Ratings Report.
- Our dividend calendar.