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."
Dividend Yield: 13.00%
Ellington Financial (NYSE: EFC) shares currently have a dividend yield of 13.00%.
Ellington Financial LLC, a specialty finance company, acquires and manages mortgage-related assets, including residential mortgage backed securities backed by prime jumbo, Alt-A, manufactured housing and subprime residential mortgage loans, and residential mortgage-backed securities. The company has a P/E ratio of 10.69.
The average volume for Ellington Financial has been 84,300 shares per day over the past 30 days. Ellington Financial has a market cap of $603.7 million and is part of the real estate industry. Shares are up 5.9% year-to-date as of the close of trading on Monday.
TheStreet Ratings rates Ellington Financial as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity.
Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 2.9%. Since the same quarter one year prior, revenues rose by 16.9%. 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 gross profit margin for ELLINGTON FINANCIAL LLC is currently very high, coming in at 77.73%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 105.29% significantly outperformed against the industry average.
- ELLINGTON FINANCIAL LLC 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. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, ELLINGTON FINANCIAL LLC reported lower earnings of $3.46 versus $5.32 in the prior year. For the next year, the market is expecting a contraction of 13.9% in earnings ($2.98 versus $3.46).
- 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 Capital Markets industry. The net income has significantly decreased by 43.9% when compared to the same quarter one year ago, falling from $40.34 million to $22.64 million.
- You can view the full Ellington Financial Ratings Report.
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