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 "Buy." Arlington Asset Investment (NYSE: AI) shares currently have a dividend yield of 12.60%. Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets. The company has a P/E ratio of 8.59. The average volume for Arlington Asset Investment has been 301,500 shares per day over the past 30 days. Arlington Asset Investment has a market cap of $534.7 million and is part of the real estate industry. Shares are up 5.5% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Arlington Asset Investment as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, increase in net income, growth in earnings per share and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- AI's very impressive revenue growth greatly exceeded the industry average of 5.1%. Since the same quarter one year prior, revenues leaped by 274.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for ARLINGTON ASSET INVESTMENT is currently very high, coming in at 76.86%. It has increased significantly from the same period last year. Along with this, the net profit margin of 39.16% significantly outperformed against the industry average.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 121.4% when compared to the same quarter one year prior, rising from $3.18 million to $7.03 million.
- ARLINGTON ASSET INVESTMENT 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, ARLINGTON ASSET INVESTMENT reported lower earnings of $2.96 versus $15.11 in the prior year. This year, the market expects an improvement in earnings ($4.16 versus $2.96).
- In its most recent trading session, AI 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 our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full Arlington Asset Investment Ratings Report.
- CAPITOL FEDERAL FINL INC has improved earnings per share by 16.7% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. We anticipate these figures will begin to experience more growth in the coming year. During the past fiscal year, CAPITOL FEDERAL FINL INC increased its bottom line by earning $0.48 versus $0.47 in the prior year. This year, the market expects an improvement in earnings ($0.54 versus $0.48).
- The gross profit margin for CAPITOL FEDERAL FINL INC is rather high; currently it is at 66.11%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 25.37% is above that of the industry average.
- CFFN, with its decline in revenue, slightly underperformed the industry average of 0.1%. Since the same quarter one year prior, revenues slightly dropped by 4.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- 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 Thrifts & Mortgage Finance industry and the overall market, CAPITOL FEDERAL FINL INC's return on equity is below that of both the industry average and the S&P 500.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Thrifts & Mortgage Finance industry. The net income increased by 11.1% when compared to the same quarter one year prior, going from $17.72 million to $19.69 million.
- You can view the full Capitol Federal Financial Ratings Report.
- The revenue growth greatly exceeded the industry average of 3.1%. Since the same quarter one year prior, revenues rose by 38.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- CRT 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. Along with this, the company maintains a quick ratio of 8.40, which clearly demonstrates the ability to cover short-term cash needs.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CROSS TIMBERS ROYALTY TRUST's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Powered by its strong earnings growth of 59.09% and other important driving factors, this stock has surged by 27.41% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CRT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- 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 58.1% when compared to the same quarter one year prior, rising from $2.66 million to $4.20 million.
- You can view the full Cross Timbers Royalty Ratings Report.
- Our dividend calendar.