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."Redwood (NYSE: RWT) shares currently have a dividend yield of 5.70%. Redwood Trust, Inc., together with its subsidiaries, operates as a specialty finance company in the United States. The company operates in three segments: Residential Mortgage Banking, Residential Investments, and Commercial Mortgage Banking and Investments. The company has a P/E ratio of 14.06. The average volume for Redwood has been 469,700 shares per day over the past 30 days. Redwood has a market cap of $1.6 billion and is part of the real estate industry. Shares are up 1% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Redwood as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.3%. Since the same quarter one year prior, revenues slightly increased by 3.7%. 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.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, REDWOOD TRUST INC's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to -$401.66 million or 39.93% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Redwood Ratings Report.
- BXMT's very impressive revenue growth greatly exceeded the industry average of 10.3%. Since the same quarter one year prior, revenues leaped by 2211.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- BLACKSTONE MORTGAGE TR 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, BLACKSTONE MORTGAGE TR INC swung to a loss, reporting -$0.25 versus $73.00 in the prior year. This year, the market expects an improvement in earnings ($1.94 versus -$0.25).
- 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 on the basis of return on equity, BLACKSTONE MORTGAGE TR INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Blackstone Mortgage Ratings Report.
- Net operating cash flow has slightly increased to $4,082.00 million or 3.60% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -33.52%.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Metals & Mining industry average. The net income has decreased by 18.0% when compared to the same quarter one year ago, dropping from $3,068.10 million to $2,515.00 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 Metals & Mining industry and the overall market on the basis of return on equity, VALE SA underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Vale Ratings Report.
- Our dividend calendar.