What To Hold: 3 Hold-Rated Dividend Stocks NLY, ERF, WRE

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."

Annaly Capital Management

Dividend Yield: 10.10%

Annaly Capital Management (NYSE: NLY) shares currently have a dividend yield of 10.10%.

Annaly Capital Management, Inc. owns a portfolio of real estate related investments in the United States. The company has a P/E ratio of 19.18.

The average volume for Annaly Capital Management has been 7,064,800 shares per day over the past 30 days. Annaly Capital Management has a market cap of $11.3 billion and is part of the real estate industry. Shares are up 18.9% year-to-date as of the close of trading on Thursday.

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

Highlights from the ratings report include:
  • Net operating cash flow has significantly increased by 141.26% to $1,576.85 million when compared to the same quarter last year. In addition, ANNALY CAPITAL MANAGEMENT has also vastly surpassed the industry average cash flow growth rate of 15.06%.
  • 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 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 120.5% when compared to the same quarter one year ago, falling from $1,638.21 million to -$335.51 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ANNALY CAPITAL MANAGEMENT's return on equity is below that of both the industry average and the S&P 500.

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Enerplus

Dividend Yield: 4.40%

Enerplus (NYSE: ERF) shares currently have a dividend yield of 4.40%.

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 45.78.

The average volume for Enerplus has been 567,900 shares per day over the past 30 days. Enerplus has a market cap of $4.6 billion and is part of the energy industry. Shares are up 24% year-to-date as of the close of trading on Thursday.

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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 2.4%. 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 -6.15%.
  • 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 34.99%, 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.

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Washington REIT

Dividend Yield: 4.30%

Washington REIT (NYSE: WRE) shares currently have a dividend yield of 4.30%.

Washington Real Estate Investment Trust is an equity real estate investment trust (REIT). The company engages in the ownership, operation, and development of real properties. The firm invests in real estate markets of the greater Washington D.C. metro region.

The average volume for Washington REIT has been 313,400 shares per day over the past 30 days. Washington REIT has a market cap of $1.8 billion and is part of the real estate industry. Shares are up 17.9% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Washington REIT as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 10.3%. Since the same quarter one year prior, revenues slightly increased by 9.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant 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. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • WASHINGTON REIT reported flat earnings per share in the most recent quarter. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, WASHINGTON REIT reported lower earnings of $0.00 versus $0.12 in the prior year. This year, the market expects an increase in earnings to $1.65 from $0.00.
  • The gross profit margin for WASHINGTON REIT is rather low; currently it is at 21.78%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.49% significantly trails the industry average.
  • Net operating cash flow has decreased to $16.64 million or 36.22% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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