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." Five Oaks Investment (NYSE: OAKS) shares currently have a dividend yield of 12.80%. Five Oaks Investment Corp. focuses on investing, financing, and managing agency and non-agency residential mortgage-backed securities (RMBS), residential mortgage loans, multi-family MBS, and other mortgage-related investments. It would elect to be taxed as a real estate investment trust. The average volume for Five Oaks Investment has been 136,400 shares per day over the past 30 days. Five Oaks Investment has a market cap of $125.1 million and is part of the real estate industry. Shares are up 13.2% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Five Oaks Investment as a sell. Among the areas we feel are negative, one of the most important has been generally deteriorating net income. Highlights from the ratings report include:
- 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 266.3% when compared to the same quarter one year ago, falling from $1.53 million to -$2.54 million.
- FIVE OAKS INVESTMENT CORP 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 year, the market expects an improvement in earnings ($1.14 versus $0.43).
- The share price of FIVE OAKS INVESTMENT CORP has not done very well: it is down 22.21% 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.
- Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, FIVE OAKS INVESTMENT CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for FIVE OAKS INVESTMENT CORP is rather high; currently it is at 59.11%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -65.02% is in-line with the industry average.
- You can view the full Five Oaks Investment Ratings Report.