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." ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 9.60%. ZAIS Financial Corp., through its subsidiary, ZAIS Financial Partners, L.P., invests, finances, and manages various residential mortgage assets, real estate-related securities, and financial assets. The company has a P/E ratio of 18.21. The average volume for ZAIS Financial has been 37,900 shares per day over the past 30 days. ZAIS Financial has a market cap of $133.5 million and is part of the real estate industry. Shares are up 1.6% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates ZAIS Financial as a sell. The area that we feel has been the company's primary weakness has been its generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- ZFC has underperformed the S&P 500 Index, declining 19.89% from its price level of one year ago.
- Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, ZAIS FINANCIAL CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for ZAIS FINANCIAL CORP is rather high; currently it is at 69.05%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, ZFC's net profit margin of 91.90% significantly outperformed against the industry.
- Net operating cash flow has improved to $2.91 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.
- You can view the full ZAIS Financial Ratings Report.
- 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 Marine industry. The net income has significantly decreased by 7400.4% when compared to the same quarter one year ago, falling from $0.27 million to -$19.78 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 Marine industry and the overall market, DIANA CONTAINERSHIPS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 32.07%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 5900.00% compared to the year-earlier quarter. 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.
- DIANA CONTAINERSHIPS INC 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, DIANA CONTAINERSHIPS INC swung to a loss, reporting -$1.75 versus $0.24 in the prior year. This year, the market expects an improvement in earnings ($0.02 versus -$1.75).
- DCIX's debt-to-equity ratio of 0.90 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. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 5.35 is very high and demonstrates very strong liquidity.
- You can view the full Diana Containerships Ratings Report.
- 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 62.0% when compared to the same quarter one year ago, falling from $3.76 million to $1.43 million.
- The debt-to-equity ratio is very high at 2.83 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, LGP maintains a poor quick ratio of 0.74, which illustrates the inability to avoid short-term cash problems.
- The gross profit margin for LEHIGH GAS PARTNERS LP is currently extremely low, coming in at 3.00%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.29% trails that of the industry average.
- Compared to where it was a year ago, the stock is now trading at a higher level, and has traded in line with the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
- LEHIGH GAS PARTNERS 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. 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, LEHIGH GAS PARTNERS LP increased its bottom line by earning $1.19 versus $0.23 in the prior year. This year, the market expects an improvement in earnings ($1.24 versus $1.19).
- You can view the full Lehigh Gas Partners Ratings Report.
- Our dividend calendar.