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 "Buy." Arlington Asset Investment (NYSE: AI) shares currently have a dividend yield of 13.40%. Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets. The company has a P/E ratio of 6.49. The average volume for Arlington Asset Investment has been 219,000 shares per day over the past 30 days. Arlington Asset Investment has a market cap of $503.4 million and is part of the real estate industry. Shares are up 0.5% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Arlington Asset Investment as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, increase in net income, growth in earnings per share and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- AI's very impressive revenue growth greatly exceeded the industry average of 2.9%. Since the same quarter one year prior, revenues leaped by 219.3%. Growth in the company's revenue appears to have helped boost 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 Capital Markets industry. The net income increased by 489.8% when compared to the same quarter one year prior, rising from $3.19 million to $18.84 million.
- The gross profit margin for ARLINGTON ASSET INVESTMENT is currently very high, coming in at 88.47%. It has increased significantly from the same period last year. Along with this, the net profit margin of 49.61% significantly outperformed against the industry average.
- ARLINGTON ASSET INVESTMENT 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, ARLINGTON ASSET INVESTMENT reported lower earnings of $2.96 versus $15.11 in the prior year. This year, the market expects an improvement in earnings ($4.45 versus $2.96).
- In its most recent trading session, AI 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. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full Arlington Asset Investment Ratings Report.