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." Diana Containerships (NASDAQ: DCIX) shares currently have a dividend yield of 15.00%. Diana Containerships Inc., a shipping company, owns and operates containerships. It is involved in the seaborne transportation activities. As of August 23, 2013, its fleet consisted of nine container vessels comprising one Post-Panamax and eight Panamax vessels. The average volume for Diana Containerships has been 251,700 shares per day over the past 30 days. Diana Containerships has a market cap of $135.9 million and is part of the transportation industry. Shares are down 1.2% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Diana Containerships as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.3%. Since the same quarter one year prior, revenues slightly increased by 5.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has increased to $9.67 million or 40.22% when compared to the same quarter last year. In addition, DIANA CONTAINERSHIPS INC has also vastly surpassed the industry average cash flow growth rate of -82.74%.
- The gross profit margin for DIANA CONTAINERSHIPS INC is rather high; currently it is at 51.68%. 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 -127.62% is in-line with the industry average.
- 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 Marine industry. The net income has significantly decreased by 7400.4% when compared to the same quarter one year ago, falling from $0.27 million to -$19.78 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 Marine industry and the overall market, DIANA CONTAINERSHIPS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Diana Containerships Ratings Report.
- The revenue growth greatly exceeded the industry average of 7.7%. Since the same quarter one year prior, revenues rose by 33.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has significantly increased by 96.18% to $39.63 million when compared to the same quarter last year. In addition, LEGACY RESERVES LP has also vastly surpassed the industry average cash flow growth rate of -23.43%.
- 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, LEGACY RESERVES LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for LEGACY RESERVES LP is currently extremely low, coming in at 11.32%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -37.04% is significantly below that of the industry average.
- You can view the full Legacy Reserves Ratings Report.
- DSWL has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.14, which clearly demonstrates the ability to cover short-term cash needs.
- DSWL, with its decline in revenue, underperformed when compared the industry average of 2.5%. Since the same quarter one year prior, revenues fell by 22.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The share price of DESWELL INDUSTRIES INC has not done very well: it is down 8.34% 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.
- The gross profit margin for DESWELL INDUSTRIES INC is rather low; currently it is at 18.76%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -13.25% is significantly below that of the industry average.
- Net operating cash flow has significantly decreased to -$0.22 million or 103.83% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Deswell Industries Ratings Report.
- Our dividend calendar.