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 14.90%. 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 2,738,400 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 16.5% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates CYS Investments as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- 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.
- CYS's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 29.37%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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 reported significant earnings per share improvement 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, 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 ($1.35 versus -$2.87).
- 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 906.6% when compared to the same quarter one year prior, rising from -$16.20 million to $130.69 million.
- The gross profit margin for CYS INVESTMENTS INC is currently very high, coming in at 93.13%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 154.90% significantly outperformed against the industry average.
- You can view the full CYS Investments Ratings Report.
- Net operating cash flow has significantly decreased to $87.11 million or 76.27% 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, HLSS 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.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Thrifts & Mortgage Finance industry and the overall market on the basis of return on equity, HOME LOAN SERVICING SOLTNS 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 HOME LOAN SERVICING SOLTNS is currently very high, coming in at 95.02%. Regardless of HLSS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HLSS's net profit margin of 51.11% significantly outperformed against the industry.
- HOME LOAN SERVICING SOLTNS has improved earnings per share by 38.6% 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, HOME LOAN SERVICING SOLTNS increased its bottom line by earning $1.97 versus $1.23 in the prior year. This year, the market expects an improvement in earnings ($2.28 versus $1.97).
- You can view the full Home Loan Servicing Solutions Ratings Report.
- ANWORTH MTG ASSET CORP's earnings per share declined by 40.0% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, ANWORTH MTG ASSET CORP reported lower earnings of $0.49 versus $0.68 in the prior year. For the next year, the market is expecting a contraction of 28.6% in earnings ($0.35 versus $0.49).
- 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 43.4% when compared to the same quarter one year ago, falling from $23.62 million to $13.37 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ANWORTH MTG ASSET CORP's return on equity is below that of both the industry average and the S&P 500.
- The share price of ANWORTH MTG ASSET CORP has not done very well: it is down 11.69% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.
- ANH, with its decline in revenue, underperformed when compared the industry average of 8.3%. Since the same quarter one year prior, revenues slightly dropped by 7.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- You can view the full Anworth Mortgage Asset Ratings Report.
- Our dividend calendar.