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 which could 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." Arlington Asset Investment (NYSE: AI) shares currently have a dividend yield of 12.60%. Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets. The company has a P/E ratio of 9.07. The average volume for Arlington Asset Investment has been 151,300 shares per day over the past 30 days. Arlington Asset Investment has a market cap of $445.5 million and is part of the real estate industry. Shares are up 5.3% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Arlington Asset Investment as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Net operating cash flow has significantly increased by 166.10% to $19.82 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 124.49%.
- The gross profit margin for ARLINGTON ASSET INVESTMENT is rather high; currently it is at 54.48%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, AI's net profit margin of 374.22% significantly outperformed against the industry.
- The revenue fell significantly faster than the industry average of 16.6%. Since the same quarter one year prior, revenues fell by 46.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Capital Markets industry. The net income has significantly decreased by 77.2% when compared to the same quarter one year ago, falling from $175.80 million to $40.00 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. When compared to other companies in the Capital Markets industry and the overall market, ARLINGTON ASSET INVESTMENT's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Arlington Asset Investment Ratings Report.