What To Hold: 3 Hold-Rated Dividend Stocks AGNC, PBF, TWO

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.

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."

American Capital Agency

Dividend Yield: 11.10%

American Capital Agency (NASDAQ: AGNC) shares currently have a dividend yield of 11.10%.

American Capital Agency Corp. operates as a real estate investment trust (REIT). The company has a P/E ratio of 10.47.

The average volume for American Capital Agency has been 4,467,500 shares per day over the past 30 days. American Capital Agency has a market cap of $8.2 billion and is part of the real estate industry. Shares are up 21.5% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates American Capital Agency as a hold. The company's strengths can be seen in multiple areas, such as its expanding profit margins and notable return on equity. 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 a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The revenue fell significantly faster than the industry average of 10.1%. Since the same quarter one year prior, revenues fell by 27.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for AMERICAN CAPITAL AGENCY CORP is currently very high, coming in at 90.79%. Regardless of AGNC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AGNC's net profit margin of -37.10% significantly underperformed when compared to the industry average.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN CAPITAL AGENCY CORP's return on equity is below that of both the industry average and the S&P 500.
  • AMERICAN CAPITAL AGENCY 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. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, AMERICAN CAPITAL AGENCY CORP reported lower earnings of $3.17 versus $4.40 in the prior year. For the next year, the market is expecting a contraction of 49.2% in earnings ($1.61 versus $3.17).
  • 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 161.0% when compared to the same quarter one year ago, falling from $231.00 million to -$141.00 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

PBF Energy

Dividend Yield: 4.10%

PBF Energy (NYSE: PBF) shares currently have a dividend yield of 4.10%.

PBF Energy Inc., together with its subsidiaries, is engaged in the refining and supply of petroleum products. The company has a P/E ratio of 13.80.

The average volume for PBF Energy has been 1,424,200 shares per day over the past 30 days. PBF Energy has a market cap of $2.1 billion and is part of the energy industry. Shares are down 5.4% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates PBF Energy as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, good cash flow from operations and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and poor profit margins.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 579.0% when compared to the same quarter one year prior, rising from $11.41 million to $77.44 million.
  • Net operating cash flow has increased to $260.57 million or 23.45% when compared to the same quarter last year. In addition, PBF ENERGY INC has also modestly surpassed the industry average cash flow growth rate of 18.91%.
  • PBF ENERGY 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, PBF ENERGY INC reported lower earnings of $1.35 versus $37.61 in the prior year. This year, the market expects an improvement in earnings ($3.68 versus $1.35).
  • The gross profit margin for PBF ENERGY INC is currently extremely low, coming in at 6.95%. Regardless of PBF's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.63% trails the industry average.
  • In its most recent trading session, PBF 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. 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.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Two Harbors Investment

Dividend Yield: 10.00%

Two Harbors Investment (NYSE: TWO) shares currently have a dividend yield of 10.00%.

Two Harbors Investment Corp. operates as a real estate investment trust (REIT) that focuses on investing in, financing, and managing residential mortgage-backed securities (RMBS), residential mortgage loans, mortgage servicing rights, and other financial assets. The company has a P/E ratio of 9.50.

The average volume for Two Harbors Investment has been 3,785,000 shares per day over the past 30 days. Two Harbors Investment has a market cap of $3.8 billion and is part of the real estate industry. Shares are up 12.2% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates Two Harbors Investment as a hold. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • The gross profit margin for TWO HARBORS INVESTMENT CORP is rather high; currently it is at 68.98%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, TWO's net profit margin of -28.36% significantly underperformed when compared to the industry average.
  • The share price of TWO HARBORS INVESTMENT CORP has not done very well: it is down 12.93% 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.
  • 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 120.3% when compared to the same quarter one year ago, falling from $143.72 million to -$29.15 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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