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." PennyMac Mortgage Investment (NYSE: PMT) shares currently have a dividend yield of 11.40%. PennyMac Mortgage Investment Trust, a specialty finance company, through its subsidiaries, invests primarily in residential mortgage loans and mortgage-related assets. The company operates through two segments, Correspondent Lending and Investment Activities. The company has a P/E ratio of 8.12. The average volume for PennyMac Mortgage Investment has been 660,600 shares per day over the past 30 days. PennyMac Mortgage Investment has a market cap of $1.5 billion and is part of the real estate industry. Shares are down 9.1% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates PennyMac Mortgage Investment as a hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, unimpressive growth in net income and disappointing return on equity. Highlights from the ratings report include:
- The gross profit margin for PENNYMAC MORTGAGE INVEST TR is rather high; currently it is at 58.18%. Regardless of PMT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PMT's net profit margin of 39.29% significantly outperformed against the industry.
- PMT, with its decline in revenue, underperformed when compared the industry average of 10.1%. Since the same quarter one year prior, revenues fell by 19.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- PENNYMAC MORTGAGE INVEST TR's earnings per share declined by 44.4% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, PENNYMAC MORTGAGE INVEST TR reported lower earnings of $3.02 versus $3.08 in the prior year. For the next year, the market is expecting a contraction of 19.4% in earnings ($2.44 versus $3.02).
- 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 28.9% when compared to the same quarter one year ago, falling from $53.30 million to $37.87 million.
- You can view the full PennyMac Mortgage Investment Ratings Report.
- LNCO has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, LNCO has a quick ratio of 2.22, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for LINNCO LLC is currently very high, coming in at 100.00%. LNCO has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, LNCO's net profit margin of 330.80% significantly outperformed against the industry.
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LINNCO LLC'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 25.49%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 3075.40% 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.
- 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 4480.9% when compared to the same quarter one year ago, falling from $21.16 million to -$926.97 million.
- You can view the full LinnCo Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Specialty Retail industry. The net income increased by 172.1% when compared to the same quarter one year prior, rising from $78.06 million to $212.38 million.
- SPLS's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that SPLS's debt-to-equity ratio is low, the quick ratio, which is currently 0.69, displays a potential problem in covering short-term cash needs.
- The gross profit margin for STAPLES INC is currently lower than what is desirable, coming in at 27.39%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.61% trails that of the industry average.
- Net operating cash flow has decreased to $233.15 million or 28.13% 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.
- You can view the full Staples Ratings Report.
- Our dividend calendar.