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.
- Despite its growing revenue, the company underperformed as compared with the industry average of 11.2%. Since the same quarter one year prior, revenues slightly increased by 8.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for EDUCATIONAL DEVELOPMENT CORP is rather high; currently it is at 61.24%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 6.44% is above that of the industry average.
- The net income growth from the same quarter one year ago has exceeded that of the Distributors industry average, but is less than that of the S&P 500. The net income increased by 4.2% when compared to the same quarter one year prior, going from $0.53 million to $0.55 million.
- EDUC has underperformed the S&P 500 Index, declining 5.65% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Distributors industry and the overall market, EDUCATIONAL DEVELOPMENT CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Educational Development Corporation Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 16.0%. Since the same quarter one year prior, revenues rose by 14.4%. 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.
- FERRELLGAS PARTNERS -LP's earnings per share declined by 40.9% 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, FERRELLGAS PARTNERS -LP turned its bottom line around by earning $0.68 versus -$0.14 in the prior year. This year, the market expects an improvement in earnings ($0.85 versus $0.68).
- The gross profit margin for FERRELLGAS PARTNERS -LP is currently extremely low, coming in at 9.44%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -5.98% is significantly below that of the industry average.
- Net operating cash flow has significantly decreased to -$34.41 million or 449.96% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Ferrellgas Partners Ratings Report.
- Our dividend calendar.