What To Hold: 3 Hold-Rated Dividend Stocks PMT, HR, SPLS

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 "Hold."

PennyMac Mortgage Investment

Dividend Yield: 10.80%

PennyMac Mortgage Investment (NYSE: PMT) shares currently have a dividend yield of 10.80%.

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 8.56.

The average volume for PennyMac Mortgage Investment has been 685,300 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 5.8% year-to-date as of the close of trading on Thursday.

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 22.1% in earnings ($2.35 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.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Healthcare Realty

Dividend Yield: 4.70%

Healthcare Realty (NYSE: HR) shares currently have a dividend yield of 4.70%.

Healthcare Realty Trust Incorporated is an independent real estate investment trust. The firm invests in real estate markets of the United States.

The average volume for Healthcare Realty has been 532,200 shares per day over the past 30 days. Healthcare Realty has a market cap of $2.5 billion and is part of the real estate industry. Shares are up 21.8% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates Healthcare Realty as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • HR's revenue growth has slightly outpaced the industry average of 10.3%. Since the same quarter one year prior, revenues rose by 14.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the 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 485.6% when compared to the same quarter one year prior, rising from -$1.00 million to $3.85 million.
  • In its most recent trading session, HR 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.
  • The gross profit margin for HEALTHCARE REALTY TRUST INC is currently lower than what is desirable, coming in at 27.88%. Regardless of HR's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, HR's net profit margin of 4.18% is significantly lower than the industry average.
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market, HEALTHCARE REALTY TRUST INC's return on equity significantly trails that of both the industry average and the S&P 500.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Staples

Dividend Yield: 4.30%

Staples (NASDAQ: SPLS) shares currently have a dividend yield of 4.30%.

Staples, Inc., together with its subsidiaries, operates office products superstores. It operates in three segments: North American Stores & Online, North American Commercial, and International Operations. The company has a P/E ratio of 11.64.

The average volume for Staples has been 9,881,900 shares per day over the past 30 days. Staples has a market cap of $7.2 billion and is part of the specialty retail industry. Shares are down 29.6% year-to-date as of the close of trading on Thursday.

TheStreet Ratings rates Staples as a hold. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • Net operating cash flow has slightly increased to $359.85 million or 3.53% when compared to the same quarter last year. In addition, STAPLES INC has also modestly surpassed the industry average cash flow growth rate of -3.74%.
  • SPLS's debt-to-equity ratio is very low at 0.19 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.74 is somewhat weak and could be cause for future problems.
  • 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 Specialty Retail industry. The net income has significantly decreased by 43.4% when compared to the same quarter one year ago, falling from $169.93 million to $96.21 million.
  • The gross profit margin for STAPLES INC is currently lower than what is desirable, coming in at 26.94%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.70% trails that of the industry average.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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