What To Hold: 3 Hold-Rated Dividend Stocks PMT, SRC, ERF

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."

PennyMac Mortgage Investment

Dividend Yield: 10.80%

PennyMac Mortgage Investment (NYSE: PMT) shares currently have a dividend yield of 10.80%.

PennyMac Mortgage Investment Trust, a specialty finance company, through its subsidiaries, invests primarily in residential mortgage loans and mortgage-related assets. The company operates through two segments, Correspondent Lending and Investment Activities. The company has a P/E ratio of 8.25.

The average volume for PennyMac Mortgage Investment has been 634,800 shares per day over the past 30 days. PennyMac Mortgage Investment has a market cap of $1.6 billion and is part of the real estate industry. Shares are down 4.8% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates PennyMac Mortgage Investment as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and feeble growth in the company's earnings per share.

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 38.0% when compared to the same quarter one year prior, rising from $54.50 million to $75.21 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 10.1%. Since the same quarter one year prior, revenues slightly increased by 9.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The gross profit margin for PENNYMAC MORTGAGE INVEST TR is rather high; currently it is at 66.82%. Regardless of PMT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PMT's net profit margin of 52.80% significantly outperformed against the industry.
  • In its most recent trading session, PMT 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. 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's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, PENNYMAC MORTGAGE INVEST TR has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.

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Spirit Realty Capital

Dividend Yield: 5.60%

Spirit Realty Capital (NYSE: SRC) shares currently have a dividend yield of 5.60%.

Spirit Realty Capital, Inc is a publicly traded real estate investment trust.

The average volume for Spirit Realty Capital has been 3,386,400 shares per day over the past 30 days. Spirit Realty Capital has a market cap of $4.8 billion and is part of the real estate industry. Shares are up 22.3% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Spirit Realty Capital as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and poor profit margins.

Highlights from the ratings report include:
  • SRC's very impressive revenue growth greatly exceeded the industry average of 10.1%. Since the same quarter one year prior, revenues leaped by 109.6%. 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 its closing price of one year ago, SRC's share price has jumped by 32.21%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • SPIRIT REALTY CAPITAL INC 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. 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, SPIRIT REALTY CAPITAL INC continued to lose money by earning -$0.10 versus -$0.48 in the prior year. This year, the market expects an improvement in earnings ($0.18 versus -$0.10).
  • The gross profit margin for SPIRIT REALTY CAPITAL INC is currently lower than what is desirable, coming in at 29.61%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -59.17% is significantly below that of the industry average.
  • 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 669.7% when compared to the same quarter one year ago, falling from -$11.67 million to -$89.82 million.

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

Enerplus

Dividend Yield: 4.60%

Enerplus (NYSE: ERF) shares currently have a dividend yield of 4.60%.

Enerplus Corporation, together with subsidiaries, is engaged in the exploration and development of crude oil and natural gas in the United States and Canada. The company has a P/E ratio of 44.29.

The average volume for Enerplus has been 587,000 shares per day over the past 30 days. Enerplus has a market cap of $4.5 billion and is part of the energy industry. Shares are up 21.4% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Enerplus as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we find that the growth in the company's net income has been quite unimpressive.

Highlights from the ratings report include:
  • ERF's revenue growth has slightly outpaced the industry average of 2.6%. Since the same quarter one year prior, revenues slightly increased by 4.7%. 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.
  • Net operating cash flow has increased to $228.51 million or 16.92% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -6.58%.
  • The current debt-to-equity ratio, 0.55, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.39 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • Compared to its closing price of one year ago, ERF's share price has jumped by 25.69%, exceeding the performance of the broader market during that same time frame. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
  • 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 Oil, Gas & Consumable Fuels industry. The net income has decreased by 24.1% when compared to the same quarter one year ago, dropping from $52.62 million to $39.96 million.

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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