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." MFA Financial (NYSE: MFA) shares currently have a dividend yield of 10.30%. MFA Financial, Inc., a real estate investment trust (REIT), invests in residential agency and non-agency mortgage-backed securities (MBS). The company has a P/E ratio of 10.19. The average volume for MFA Financial has been 3,156,700 shares per day over the past 30 days. MFA Financial has a market cap of $2.8 billion and is part of the real estate industry. Shares are up 10.3% year-to-date as of the close of trading on Monday. TheStreet Ratings rates MFA Financial as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 0.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The net income growth from the same quarter one year ago has exceeded that of the Real Estate Investment Trusts (REITs) industry average, but is less than that of the S&P 500. The net income increased by 13.5% when compared to the same quarter one year prior, going from $69.22 million to $78.56 million.
- MFA has underperformed the S&P 500 Index, declining 17.93% 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.
- Net operating cash flow has declined marginally to $70.96 million or 8.78% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full MFA Financial Ratings Report.
- NYMT's very impressive revenue growth greatly exceeded the industry average of 6.7%. Since the same quarter one year prior, revenues leaped by 95.3%. Growth in the company's revenue appears to have helped boost the 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, NEW YORK MORTGAGE TRUST INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- The gross profit margin for NEW YORK MORTGAGE TRUST INC is currently lower than what is desirable, coming in at 28.56%. Regardless of NYMT's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, NYMT's net profit margin of 23.68% compares favorably to the industry average.
- Net operating cash flow has decreased to $8.21 million or 38.15% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full New York Mortgage Ratings Report.
- PENNSYLVANIA RE INVS TRUST 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 two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, PENNSYLVANIA RE INVS TRUST continued to lose money by earning -$0.57 versus -$0.91 in the prior year. This year, the market expects an improvement in earnings (-$0.10 versus -$0.57).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 214.4% when compared to the same quarter one year prior, rising from -$6.60 million to $7.55 million.
- In its most recent trading session, PEI 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.
- The gross profit margin for PENNSYLVANIA RE INVS TRUST is rather low; currently it is at 22.65%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 6.18% significantly trails the industry average.
- You can view the full Pennsylvania REIT Ratings Report.
- Our dividend calendar.