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." American Capital Agency (NASDAQ: AGNC) shares currently have a dividend yield of 11.30%. American Capital Agency Corp. operates as a real estate investment trust (REIT). The company has a P/E ratio of 10.32. The average volume for American Capital Agency has been 3,784,300 shares per day over the past 30 days. American Capital Agency has a market cap of $8.1 billion and is part of the real estate industry. Shares are up 19.3% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates American Capital Agency as a hold. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, expanding profit margins and notable return on equity. 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 weak operating cash flow. Highlights from the ratings report include:
- 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 revenue fell significantly faster than the industry average of 10.3%. Since the same quarter one year prior, revenues fell by 27.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 161.0% when compared to the same quarter one year ago, falling from $231.00 million to -$141.00 million.
- Net operating cash flow has declined marginally to $488.00 million or 5.79% 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.
- You can view the full American Capital Agency Ratings Report.