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."Capstead Mortgage (NYSE: CMO) shares currently have a dividend yield of 10.40%. Capstead Mortgage Corporation operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 13.24. The average volume for Capstead Mortgage has been 847,800 shares per day over the past 30 days. Capstead Mortgage has a market cap of $1.3 billion and is part of the real estate industry. Shares are up 8.7% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Capstead Mortgage as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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 net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry average. The net income increased by 9.9% when compared to the same quarter one year prior, going from $34.92 million to $38.39 million.
- CAPSTEAD MORTGAGE CORP has improved earnings per share by 19.4% 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, CAPSTEAD MORTGAGE CORP reported lower earnings of $0.93 versus $1.50 in the prior year. This year, the market expects an improvement in earnings ($1.46 versus $0.93).
- Net operating cash flow has declined marginally to $61.40 million or 2.89% when compared to the same quarter last year. Despite a decrease in cash flow CAPSTEAD MORTGAGE CORP is still fairing well by exceeding its industry average cash flow growth rate of -37.20%.
- 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, CAPSTEAD MORTGAGE CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Capstead Mortgage Ratings Report.
- The revenue growth came in higher than the industry average of 10.1%. Since the same quarter one year prior, revenues rose by 21.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- EDUCATION REALTY TRUST INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, EDUCATION REALTY TRUST INC turned its bottom line around by earning $0.05 versus -$0.01 in the prior year. This year, the market expects an improvement in earnings ($0.17 versus $0.05).
- 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. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- Net operating cash flow has decreased to $17.18 million or 13.47% when compared to the same quarter last year. Despite a decrease in cash flow EDUCATION REALTY TRUST INC is still fairing well by exceeding its industry average cash flow growth rate of -37.20%.
- The gross profit margin for EDUCATION REALTY TRUST INC is rather low; currently it is at 15.31%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 22.10% trails that of the industry average.
- You can view the full Education Realty Ratings Report.
- LINE's very impressive revenue growth greatly exceeded the industry average of 3.5%. Since the same quarter one year prior, revenues leaped by 98.8%. 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.
- LINN ENERGY LLC 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, LINN ENERGY LLC reported poor results of -$2.78 versus -$1.86 in the prior year. This year, the market expects an improvement in earnings ($1.51 versus -$2.78).
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LINN ENERGY LLC's return on equity significantly trails that of both the industry average and the S&P 500.
- Currently the debt-to-equity ratio of 1.69 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.48, which clearly demonstrates the inability to cover short-term cash needs.
- You can view the full Linn Energy Ratings Report.
- Our dividend calendar.