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." America First Multifamily Investors (NASDAQ: ATAX) shares currently have a dividend yield of 8.50%. America First Multifamily Investors, L.P. acquires, holds, sells, and deals in a portfolio of federally tax-exempt mortgage revenue bonds that have been issued to provide construction and/or permanent financing of multifamily residential apartments. The company has a P/E ratio of 18.84. The average volume for America First Multifamily Investors has been 369,900 shares per day over the past 30 days. America First Multifamily Investors has a market cap of $346.1 million and is part of the real estate industry. Shares are down 6.8% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates America First Multifamily Investors as a sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- Net operating cash flow has decreased to $3.56 million or 13.12% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- ATAX has underperformed the S&P 500 Index, declining 16.05% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Thrifts & Mortgage Finance industry and the overall market, AMERICA FIRST MULTIFAMILY-LP's return on equity is below that of both the industry average and the S&P 500.
- The gross profit margin for AMERICA FIRST MULTIFAMILY-LP is currently very high, coming in at 72.51%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 21.48% is above that of the industry average.
- AMERICA FIRST MULTIFAMILY-LP has improved earnings per share by 25.0% 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, AMERICA FIRST MULTIFAMILY-LP increased its bottom line by earning $0.34 versus $0.09 in the prior year. This year, the market expects an improvement in earnings ($0.41 versus $0.34).
- You can view the full America First Multifamily Investors Ratings Report.