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 (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.
- You can view the full American Capital Agency Ratings Report.