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 "Sell." CYS Investments (NYSE: CYS) shares currently have a dividend yield of 14.70%. CYS Investments, Inc., a specialty finance company, makes leveraged investments in whole-pool residential mortgage pass-through securities where the principal and interest payments are guaranteed. The average volume for CYS Investments has been 2,808,200 shares per day over the past 30 days. CYS Investments has a market cap of $1.4 billion and is part of the real estate industry. Shares are up 18.4% year-to-date as of the close of trading on Friday. TheStreet Ratings rates CYS Investments as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share. Highlights from the ratings report include:
- 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 130.0% when compared to the same quarter one year ago, falling from -$39.94 million to -$91.86 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 Real Estate Investment Trusts (REITs) industry and the overall market, CYS INVESTMENTS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 29.10%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 145.83% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- CYS INVESTMENTS INC 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, CYS INVESTMENTS INC swung to a loss, reporting -$2.87 versus $2.75 in the prior year. This year, the market expects an improvement in earnings ($1.42 versus -$2.87).
- The gross profit margin for CYS INVESTMENTS INC is currently very high, coming in at 95.41%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -100.13% is in-line with the industry average.
- You can view the full CYS Investments Ratings Report.
- The gross profit margin for OAKTREE CAPITAL GROUP LLC is currently lower than what is desirable, coming in at 34.92%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 12.80% trails that of the industry average.
- Net operating cash flow has significantly decreased to $772.39 million or 77.78% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- In its most recent trading session, OAK 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. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- OAKTREE CAPITAL GROUP LLC has improved earnings per share by 30.0% 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, OAKTREE CAPITAL GROUP LLC increased its bottom line by earning $6.43 versus $3.56 in the prior year. For the next year, the market is expecting a contraction of 27.7% in earnings ($4.65 versus $6.43).
- OAK, with its decline in revenue, slightly underperformed the industry average of 7.7%. Since the same quarter one year prior, revenues fell by 10.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full Oaktree Capital Group Ratings Report.
- 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, NORDIC AMERICAN TANKERS LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$18.25 million or 180.70% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The gross profit margin for NORDIC AMERICAN TANKERS LTD is currently extremely low, coming in at 8.15%. Regardless of NAT's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, NAT's net profit margin of -33.75% significantly underperformed when compared to the industry average.
- NAT has underperformed the S&P 500 Index, declining 13.62% 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.
- NORDIC AMERICAN TANKERS LTD has improved earnings per share by 49.2% 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, NORDIC AMERICAN TANKERS LTD reported poor results of -$1.67 versus -$1.38 in the prior year. This year, the market expects an improvement in earnings (-$0.46 versus -$1.67).
- You can view the full Nordic American Tankers Ratings Report.
- Our dividend calendar.