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 11.00%. 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 8.39. The average volume for PennyMac Mortgage Investment has been 615,500 shares per day over the past 30 days. PennyMac Mortgage Investment has a market cap of $1.6 billion and is part of the real estate industry. Shares are down 5.3% year-to-date as of the close of trading on Monday. 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, expanding profit margins and good cash flow from operations. 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 65.82%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 39.29% significantly outperformed against the industry average.
- PMT, with its decline in revenue, underperformed when compared the industry average of 10.3%. 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 21.2% in earnings ($2.38 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.
- The revenue growth came in higher than the industry average of 10.3%. Since the same quarter one year prior, revenues rose by 32.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 351.6% when compared to the same quarter one year prior, rising from -$0.15 million to $0.39 million.
- Net operating cash flow has increased to $14.53 million or 15.49% when compared to the same quarter last year. Despite an increase in cash flow, STAG INDUSTRIAL INC's cash flow growth rate is still lower than the industry average growth rate of 29.99%.
- 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, STAG INDUSTRIAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for STAG INDUSTRIAL INC is currently extremely low, coming in at 14.18%. Regardless of STAG's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, STAG's net profit margin of 0.96% is significantly lower than the industry average.
- You can view the full Stag Industrial Ratings Report.
- EC's revenue growth has slightly outpaced the industry average of 3.1%. Since the same quarter one year prior, revenues slightly increased by 1.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The current debt-to-equity ratio, 0.36, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that EC's debt-to-equity ratio is low, the quick ratio, which is currently 0.55, displays a potential problem in covering short-term cash needs.
- Net operating cash flow has decreased to $1,849.80 million or 17.24% 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.
- ECOPETROL SA's earnings per share declined by 11.0% in the most recent quarter compared to 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, ECOPETROL SA reported lower earnings of $3.31 versus $4.10 in the prior year. For the next year, the market is expecting a contraction of 2.0% in earnings ($3.25 versus $3.31).
- You can view the full Ecopetrol Ratings Report.
- Our dividend calendar.