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 "Sell." Western Asset Mortgage Capital (NYSE: WMC) shares currently have a dividend yield of 19.70%. Western Asset Mortgage Capital Corporation operates as a real estate investment trust in the United States. It primarily focuses on investing in, financing, and managing agency and non-agency residential mortgage-backed securities and commercial mortgage-backed securities. The average volume for Western Asset Mortgage Capital has been 694,600 shares per day over the past 30 days. Western Asset Mortgage Capital has a market cap of $567.4 million and is part of the real estate industry. Shares are down 8.5% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Western Asset Mortgage Capital as a sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- Net operating cash flow has significantly decreased to $11.51 million or 77.93% 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.
- WMC has underperformed the S&P 500 Index, declining 19.00% from its price level of one year ago. 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 gross profit margin for WESTERN ASSET MTG CAPITAL CP is currently very high, coming in at 93.39%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, WMC's net profit margin of -14.37% significantly underperformed when compared to the industry average.
- Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, WESTERN ASSET MTG CAPITAL CP's return on equity significantly trails that of both the industry average and the S&P 500.
- WESTERN ASSET MTG CAPITAL CP 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, WESTERN ASSET MTG CAPITAL CP swung to a loss, reporting -$1.18 versus $3.76 in the prior year. This year, the market expects an improvement in earnings ($2.15 versus -$1.18).
- You can view the full Western Asset Mortgage Capital Ratings Report.
- In its most recent trading session, APAM 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. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- 39.09% is the gross profit margin for ARTISAN PARTNERS ASSET MGMT which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 9.25% trails the industry average.
- ARTISAN PARTNERS ASSET MGMT 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 year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ARTISAN PARTNERS ASSET MGMT increased its bottom line by earning $0.38 versus $0.00 in the prior year. This year, the market expects an improvement in earnings ($3.35 versus $0.38).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 232.9% when compared to the same quarter one year prior, rising from $5.80 million to $19.30 million.
- You can view the full Artisan Partners Asset Management Ratings Report.
- BROOKFIELD PROPERTY PRTRS LP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago.
- 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 Management & Development industry. The net income has significantly decreased by 76.6% when compared to the same quarter one year ago, falling from $329.00 million to $77.00 million.
- The debt-to-equity ratio is very high at 4.78 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.39, which clearly demonstrates the inability to cover short-term cash needs.
- Despite the weak revenue results, BPY has outperformed against the industry average of 19.5%. Since the same quarter one year prior, revenues slightly dropped by 6.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for BROOKFIELD PROPERTY PRTRS LP is rather high; currently it is at 50.05%. Regardless of BPY'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 7.29% trails the industry average.
- You can view the full Brookfield Property Partners Ratings Report.
- Our dividend calendar.