What To Hold: 3 Hold-Rated Dividend Stocks LINE, RWT, AINV

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 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."

Linn Energy

Dividend Yield: 10.20%

Linn Energy (NASDAQ: LINE) shares currently have a dividend yield of 10.20%.

Linn Energy, LLC, an independent oil and natural gas company, acquires and develops oil and natural gas properties. The company's properties are located in Rockies, the Mid-Continent, the Hugoton Basin, California, the Permian Basin, Michigan, Illinois, and East Texas in the United States.

The average volume for Linn Energy has been 1,771,100 shares per day over the past 30 days. Linn Energy has a market cap of $9.4 billion and is part of the energy industry. Shares are down 8% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Linn Energy as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 7.9%. Since the same quarter one year prior, revenues slightly increased by 9.7%. 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 slightly increased to $225.70 million or 9.31% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -23.15%.
  • LINN ENERGY LLC 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, LINN ENERGY LLC reported poor results of -$2.78 versus -$1.86 in the prior year. This year, the market expects an improvement in earnings ($1.61 versus -$2.78).
  • Currently the debt-to-equity ratio of 1.56 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.43, which clearly demonstrates the inability to cover short-term cash needs.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, LINN ENERGY LLC's return on equity significantly trails that of both the industry average and the S&P 500.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Redwood

Dividend Yield: 5.50%

Redwood (NYSE: RWT) shares currently have a dividend yield of 5.50%.

Redwood Trust, Inc. engages in investing, financing, and managing real estate-related assets. The company has a P/E ratio of 10.77.

The average volume for Redwood has been 507,300 shares per day over the past 30 days. Redwood has a market cap of $1.7 billion and is part of the real estate industry. Shares are up 4.7% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Redwood as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • RWT's revenue growth has slightly outpaced the industry average of 6.9%. Since the same quarter one year prior, revenues slightly increased by 7.7%. 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.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength 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, REDWOOD TRUST INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • The share price of REDWOOD TRUST INC has not done very well: it is down 11.83% 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 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 40.3% when compared to the same quarter one year ago, falling from $42.08 million to $25.13 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Apollo Investment

Dividend Yield: 9.70%

Apollo Investment (NASDAQ: AINV) shares currently have a dividend yield of 9.70%.

Apollo Investment Corporation is business development company and operates as a closed-end management investment company. The company invests in middle market companies. It provides direct equity capital, mezzanine and senior secured loans, and subordinated debt and loans. The company has a P/E ratio of 7.08.

The average volume for Apollo Investment has been 3,439,100 shares per day over the past 30 days. Apollo Investment has a market cap of $1.9 billion and is part of the financial services industry. Shares are down 2.5% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Apollo Investment as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 7.7%. Since the same quarter one year prior, revenues rose by 13.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • APOLLO INVESTMENT CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, APOLLO INVESTMENT CORP turned its bottom line around by earning $0.49 versus -$0.45 in the prior year. This year, the market expects an improvement in earnings ($0.90 versus $0.49).
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, APOLLO INVESTMENT CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • In its most recent trading session, AINV 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.
  • Net operating cash flow has significantly decreased to -$122.64 million or 450.50% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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