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 7.50%. 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 283,600 shares per day over the past 30 days. Diana Containerships has a market cap of $97.5 million and is part of the transportation industry. Shares are down 33.8% year-to-date as of the close of trading on Wednesday. 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 49.81%, 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 1.6%. 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.
- ZFC has underperformed the S&P 500 Index, declining 9.94% from its price level of one year ago. 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.
- When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ZAIS FINANCIAL CORP's return on equity is below that of both the industry average and the S&P 500.
- The gross profit margin for ZAIS FINANCIAL CORP is rather high; currently it is at 56.82%. It has increased significantly from the same period last year. Along with this, the net profit margin of 23.42% is above that of the industry average.
- Net operating cash flow has significantly increased by 1192.24% to $1.67 million when compared to the same quarter last year. In addition, ZAIS FINANCIAL CORP has also vastly surpassed the industry average cash flow growth rate of 30.28%.
- You can view the full ZAIS Financial Ratings Report.
- 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 266.3% when compared to the same quarter one year ago, falling from $1.53 million to -$2.54 million.
- FIVE OAKS INVESTMENT 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. This year, the market expects an improvement in earnings ($0.79 versus $0.43).
- The share price of FIVE OAKS INVESTMENT CORP has not done very well: it is down 13.39% 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.
- Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, FIVE OAKS INVESTMENT CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for FIVE OAKS INVESTMENT CORP is rather high; currently it is at 59.11%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -65.02% is in-line with the industry average.
- You can view the full Five Oaks Investment Ratings Report.
- Our dividend calendar.