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 (NYSE: CMO) shares currently have a dividend yield of 10.50%. Capstead Mortgage Corporation operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 13.03. The average volume for Capstead Mortgage has been 1,032,800 shares per day over the past 30 days. Capstead Mortgage has a market cap of $1.2 billion and is part of the real estate industry. Shares are up 6.5% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Capstead Mortgage 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 disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 8.3%. Since the same quarter one year prior, revenues slightly increased by 1.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- CAPSTEAD MORTGAGE CORP has improved earnings per share by 19.4% 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 ($1.44 versus $0.93).
- In its most recent trading session, CMO 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 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 Ratings Report.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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 net income growth from the same quarter one year ago has exceeded that of the Diversified Financial Services industry average, but is less than that of the S&P 500. The net income increased by 10.0% when compared to the same quarter one year prior, going from $98.34 million to $108.18 million.
- 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 Diversified Financial Services industry and the overall market on the basis of return on equity, KKR FINANCIAL HOLDINGS LLC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- The debt-to-equity ratio is very high at 2.48 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
- You can view the full KKR Financial Holdings Ratings Report.
- The revenue growth came in higher than the industry average of 11.3%. Since the same quarter one year prior, revenues rose by 16.6%. 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.
- FWLT's debt-to-equity ratio is very low at 0.16 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.02, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for FOSTER WHEELER AG is rather low; currently it is at 18.68%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -4.36% trails that of the industry average.
- You can view the full Foster Wheeler Ratings Report.
- Our dividend calendar.