Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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."ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 9.60%. Zais Financial Corp. invests in, finances, and manages performing and re-performing residential mortgage loans. The company also invests in, finances, and manages residential mortgage-backed securities (RMBS) that are not issued or guaranteed by a federally chartered corporation. The company has a P/E ratio of 18.91. The average volume for ZAIS Financial has been 49,900 shares per day over the past 30 days. ZAIS Financial has a market cap of $132.4 million and is part of the real estate industry. Shares are up 2.9% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates ZAIS Financial as a sell. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- ZFC has underperformed the S&P 500 Index, declining 11.49% 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 29.95%.
- You can view the full ZAIS Financial Ratings Report.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, APOLLO RESIDENTIAL MTG 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 $12.31 million or 35.62% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- In its most recent trading session, AMTG 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, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- AMTG, with its decline in revenue, underperformed when compared the industry average of 10.3%. Since the same quarter one year prior, revenues slightly dropped by 0.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- APOLLO RESIDENTIAL MTG INC 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, APOLLO RESIDENTIAL MTG INC swung to a loss, reporting -$1.91 versus $8.19 in the prior year. This year, the market expects an improvement in earnings ($2.12 versus -$1.91).
- You can view the full Apollo Residential Mortgage 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 ($1.14 versus $0.43).
- The share price of FIVE OAKS INVESTMENT CORP has not done very well: it is down 14.25% 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.