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 14.30%. 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 2,613,200 shares per day over the past 30 days. CYS Investments has a market cap of $1.5 billion and is part of the real estate industry. Shares are up 20.5% 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, weak operating cash flow 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.
- Net operating cash flow has significantly decreased to $49.48 million or 78.45% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- CYS has underperformed the S&P 500 Index, declining 24.02% 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.
- 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.
- You can view the full CYS Investments Ratings Report.
- 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, PENN WEST PETROLEUM LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has declined marginally to $232.00 million or 9.37% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- PENN WEST PETROLEUM LTD reported flat earnings per share in the most recent quarter. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, PENN WEST PETROLEUM LTD swung to a loss, reporting -$1.71 versus $0.37 in the prior year.
- In its most recent trading session, PWE 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. 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.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.3%. Since the same quarter one year prior, revenues slightly dropped by 0.4%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.
- You can view the full Penn West Petroleum Ratings Report.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Capital Markets industry. The net income has decreased by 10.0% when compared to the same quarter one year ago, dropping from $57.57 million to $51.79 million.
- The share price of OAKTREE CAPITAL GROUP LLC has not done very well: it is down 9.43% 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.
- OAKTREE CAPITAL GROUP LLC's earnings per share declined by 31.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, OAKTREE CAPITAL GROUP LLC increased its bottom line by earning $6.43 versus $3.56 in the prior year. For the next year, the market is expecting a contraction of 34.0% in earnings ($4.24 versus $6.43).
- OAK, with its decline in revenue, slightly underperformed the industry average of 5.1%. Since the same quarter one year prior, revenues fell by 11.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 37.09% is the gross profit margin for OAKTREE CAPITAL GROUP LLC which we consider to be strong. Regardless of OAK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 12.70% trails the industry average.
- You can view the full Oaktree Capital Group Ratings Report.
- Our dividend calendar.