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."Capstead Mortgage Corporation (NYSE: CMO) shares currently have a dividend yield of 10.70%. Capstead Mortgage Corporation operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 14.04. The average volume for Capstead Mortgage Corporation has been 1,068,100 shares per day over the past 30 days. Capstead Mortgage Corporation has a market cap of $1.2 billion and is part of the real estate industry. Shares are up 5.3% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Capstead Mortgage Corporation as a hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, expanding profit margins and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- The gross profit margin for CAPSTEAD MORTGAGE CORP is currently very high, coming in at 93.21%. Regardless of CMO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CMO's net profit margin of 63.18% significantly outperformed against the industry.
- CAPSTEAD MORTGAGE CORP has improved earnings per share by 12.9% 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, CAPSTEAD MORTGAGE CORP reported lower earnings of $0.93 versus $1.50 in the prior year. This year, the market expects an improvement in earnings ($1.39 versus $0.93).
- Net operating cash flow has declined marginally to $67.10 million or 4.58% 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.
- 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CAPSTEAD MORTGAGE CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Capstead Mortgage Corporation 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.
- The gross profit margin for SHIP FINANCE INTL LTD is rather high; currently it is at 56.68%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, SFL's net profit margin of 25.52% significantly outperformed against the industry.
- SFL, with its decline in revenue, slightly underperformed the industry average of 7.6%. Since the same quarter one year prior, revenues slightly dropped by 7.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- In its most recent trading session, SFL 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The debt-to-equity ratio of 1.46 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, SFL has a quick ratio of 0.65, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, SHIP FINANCE INTL LTD's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full Ship Finance International Ratings Report.
- Our dividend calendar.