What To Hold: 3 Hold-Rated Dividend Stocks CTL, NLY, FE

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."

CenturyLink

Dividend Yield: 5.50%

CenturyLink (NYSE: CTL) shares currently have a dividend yield of 5.50%.

CenturyLink, Inc. operates as an integrated telecommunications company in the United States. The company operates through four segments: Consumer, Business, Wholesale, and Data Hosting.

The average volume for CenturyLink has been 5,106,100 shares per day over the past 30 days. CenturyLink has a market cap of $22.5 billion and is part of the telecommunications industry. Shares are up 22.6% year-to-date as of the close of trading on Friday.

TheStreet Ratings rates CenturyLink as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year 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 2.6%. Since the same quarter one year prior, revenues slightly increased by 0.6%. 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 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 gross profit margin for CENTURYLINK INC is rather high; currently it is at 57.45%. Regardless of CTL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 4.47% trails the industry average.
  • 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 Diversified Telecommunication Services industry and the overall market, CENTURYLINK INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • 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 Diversified Telecommunication Services industry. The net income has significantly decreased by 31.9% when compared to the same quarter one year ago, falling from $298.00 million to $203.00 million.

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

Annaly Capital Management

Dividend Yield: 10.80%

Annaly Capital Management (NYSE: NLY) shares currently have a dividend yield of 10.80%.

Annaly Capital Management, Inc. owns a portfolio of real estate related investments in the United States. The company has a P/E ratio of 4.20.

The average volume for Annaly Capital Management has been 7,542,800 shares per day over the past 30 days. Annaly Capital Management has a market cap of $10.5 billion and is part of the real estate industry. Shares are up 12.2% year-to-date as of the close of trading on Friday.

TheStreet Ratings rates Annaly Capital Management as a hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ANNALY CAPITAL MANAGEMENT's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for ANNALY CAPITAL MANAGEMENT is currently very high, coming in at 92.23%. Regardless of NLY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NLY's net profit margin of -33.33% significantly underperformed when compared to the industry average.
  • The share price of ANNALY CAPITAL MANAGEMENT has not done very well: it is down 6.88% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • 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 123.4% when compared to the same quarter one year ago, falling from $870.28 million to -$203.35 million.

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

FirstEnergy

Dividend Yield: 4.60%

FirstEnergy (NYSE: FE) shares currently have a dividend yield of 4.60%.

FirstEnergy Corp., a diversified energy company, generates, transmits, and distributes electricity in the United States. The company operates through Regulated Distribution, Regulated Transmission, and Competitive Energy Services segments. The company has a P/E ratio of 42.75.

The average volume for FirstEnergy has been 3,973,000 shares per day over the past 30 days. FirstEnergy has a market cap of $13.1 billion and is part of the utilities industry. Shares are down 5.6% year-to-date as of the close of trading on Friday.

TheStreet Ratings rates FirstEnergy as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth and increase in net income. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • FE's revenue growth has slightly outpaced the industry average of 5.7%. Since the same quarter one year prior, revenues rose by 12.5%. 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.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Electric Utilities industry average. The net income increased by 6.1% when compared to the same quarter one year prior, going from $196.00 million to $208.00 million.
  • FIRSTENERGY CORP's earnings per share declined by 37.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, FIRSTENERGY CORP reported lower earnings of $0.90 versus $1.80 in the prior year. This year, the market expects an improvement in earnings ($2.46 versus $0.90).
  • The gross profit margin for FIRSTENERGY CORP is rather low; currently it is at 16.69%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 4.96% trails that of the industry average.
  • Net operating cash flow has significantly decreased to -$92.00 million or 284.00% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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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