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." Diana Containerships (NASDAQ: DCIX) shares currently have a dividend yield of 7.20%. Diana Containerships Inc. operates in the seaborne transportation industry. It owns and operates containerships. Its fleet consists of 6 panamax and 2 post-panamax containerships with a combined carrying capacity of 36,165 TEU. The company was founded in 2010 and is based in Athens, Greece. The average volume for Diana Containerships has been 234,400 shares per day over the past 30 days. Diana Containerships has a market cap of $101.9 million and is part of the transportation industry. Shares are down 31.1% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Diana Containerships 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:
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Marine industry and the overall market, DIANA CONTAINERSHIPS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $5.54 million or 29.34% 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.
- DCIX's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 48.09%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- DCIX, with its decline in revenue, underperformed when compared the industry average of 7.3%. Since the same quarter one year prior, revenues fell by 11.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- DCIX's debt-to-equity ratio of 0.91 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further.
- You can view the full Diana Containerships Ratings Report.
- The gross profit margin for USA COMPRESSION PRTNRS LP is rather high; currently it is at 64.71%. Regardless of USAC'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 7.79% trails the industry average.
- Compared to where it was a year ago today, the stock is now trading at a higher level, and has traded in line with the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
- USA COMPRESSION PRTNRS LP has improved earnings per share by 42.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, USA COMPRESSION PRTNRS LP increased its bottom line by earning $0.32 versus $0.15 in the prior year. This year, the market expects an improvement in earnings ($0.57 versus $0.32).
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Energy Equipment & Services industry average. The net income increased by 55.3% when compared to the same quarter one year prior, rising from $2.52 million to $3.92 million.
- USAC's very impressive revenue growth greatly exceeded the industry average of 11.2%. Since the same quarter one year prior, revenues leaped by 54.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- You can view the full USA Compression Partners Ratings Report.
- GLADSTONE COMMERCIAL 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, GLADSTONE COMMERCIAL CORP reported poor results of -$0.22 versus -$0.05 in the prior year. For the next year, the market is expecting a contraction of 340.9% in earnings (-$0.97 versus -$0.22).
- 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 3221.0% when compared to the same quarter one year ago, falling from $0.43 million to -$13.51 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, GLADSTONE COMMERCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The share price of GLADSTONE COMMERCIAL CORP has not done very well: it is down 15.51% 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.
- Net operating cash flow has significantly increased by 101.66% to $6.16 million when compared to the same quarter last year. In addition, GLADSTONE COMMERCIAL CORP has also vastly surpassed the industry average cash flow growth rate of 27.25%.
- You can view the full Gladstone Commercial Ratings Report.
- Our dividend calendar.