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." MFA Financial (NYSE: MFA) shares currently have a dividend yield of 9.90%. MFA Financial, Inc., a real estate investment trust (REIT), invests in residential agency and non-agency mortgage-backed securities (MBS). The company has a P/E ratio of 10.49. The average volume for MFA Financial has been 2,710,400 shares per day over the past 30 days. MFA Financial has a market cap of $3.0 billion and is part of the real estate industry. Shares are up 13.7% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates MFA Financial as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, weak operating cash flow and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the Real Estate Investment Trusts (REITs) industry average, but is less than that of the S&P 500. The net income increased by 13.5% when compared to the same quarter one year prior, going from $69.22 million to $78.56 million.
- 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 0.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- MFA has underperformed the S&P 500 Index, declining 13.73% 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.
- Net operating cash flow has declined marginally to $70.96 million or 8.78% when compared to the same quarter last year. Despite a decrease in cash flow of 8.78%, MFA FINANCIAL INC is still significantly exceeding the industry average of -70.87%.
- You can view the full MFA Financial Ratings Report.
- ATLS's very impressive revenue growth greatly exceeded the industry average of 0.2%. Since the same quarter one year prior, revenues leaped by 75.7%. 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.
- Net operating cash flow has significantly increased by 128.94% to $97.00 million when compared to the same quarter last year. In addition, ATLAS ENERGY LP has also vastly surpassed the industry average cash flow growth rate of 5.61%.
- ATLAS ENERGY LP 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, ATLAS ENERGY LP reported poor results of -$1.48 versus -$1.02 in the prior year. This year, the market expects an improvement in earnings ($0.99 versus -$1.48).
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ATLAS ENERGY LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for ATLAS ENERGY LP is rather low; currently it is at 15.34%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -3.53% trails that of the industry average.
- You can view the full Atlas Energy Ratings Report.
- APL's very impressive revenue growth greatly exceeded the industry average of 0.2%. Since the same quarter one year prior, revenues leaped by 68.3%. 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.
- Net operating cash flow has increased to $65.72 million or 33.81% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 5.61%.
- APL's debt-to-equity ratio of 0.78 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.70 is weak.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 478.4% when compared to the same quarter one year ago, falling from -$8.81 million to -$50.95 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 Oil, Gas & Consumable Fuels industry and the overall market, ATLAS PIPELINE PARTNER LP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Atlas Pipeline Partners Ratings Report.
- Our dividend calendar.