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." CYS Investments (NYSE: CYS) shares currently have a dividend yield of 14.10%. CYS Investments, Inc., a specialty finance company, makes leveraged investments in whole-pool residential mortgage pass-through securities where the principal and interest payments are guaranteed. The company has a P/E ratio of 7.35. The average volume for CYS Investments has been 2,102,200 shares per day over the past 30 days. CYS Investments has a market cap of $1.5 billion and is part of the real estate industry. Shares are up 20.6% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates CYS Investments as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, attractive valuation levels and good cash flow from operations. However, as a counter to these strengths, we find that the company's revenue growth has not been good. Highlights from the ratings report include:
- 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 139.8% when compared to the same quarter one year prior, rising from -$398.29 million to $158.38 million.
- 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.
- CYS, with its decline in revenue, underperformed when compared the industry average of 10.1%. Since the same quarter one year prior, revenues fell by 11.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CYS INVESTMENTS INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full CYS Investments Ratings Report.