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." New Residential Investment Dividend Yield: 11.00% New Residential Investment (NYSE: NRZ) shares currently have a dividend yield of 11.00%. New Residential Investment Corp., a real estate investment trust, focuses on investing in residential mortgage related assets. It operates through Servicing Related Assets, Residential Securities and Loans, and Other Investments segments. The company has a P/E ratio of 5.34. The average volume for New Residential Investment has been 1,859,500 shares per day over the past 30 days. New Residential Investment has a market cap of $1.8 billion and is part of the real estate industry. Shares are down 5.5% year-to-date as of the close of trading on Wednesday. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more. TheStreet Ratings rates New Residential Investment as a sell. Among the areas we feel are negative, one of the most important has been the company's poor growth in earnings per share. Highlights from the ratings report include:
- NEW RESIDENTIAL INV CP's earnings per share improvement from the most recent quarter was slightly positive. For the next year, the market is expecting a contraction of 26.7% in earnings ($0.72 versus $0.98).
- In its most recent trading session, NRZ 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. Regardless of the rise in share value over the previous year, we feel that the risks involved in investing in this stock do not compensate for any future upside potential.
- The gross profit margin for NEW RESIDENTIAL INV CP is currently very high, coming in at 88.95%. Regardless of NRZ's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NRZ's net profit margin of 45.75% significantly outperformed against the industry.
- Net operating cash flow has improved to $25.37 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.
- You can view the full New Residential Investment Ratings Report.
- Net operating cash flow has significantly decreased to $40.11 million or 71.85% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN CAPITAL MTG INV CP's return on equity is below that of both the industry average and the S&P 500.
- In its most recent trading session, MTGE 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, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- AMERICAN CAPITAL MTG INV 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, AMERICAN CAPITAL MTG INV CP swung to a loss, reporting -$1.58 versus $8.40 in the prior year. This year, the market expects an improvement in earnings ($2.64 versus -$1.58).
- The gross profit margin for AMERICAN CAPITAL MTG INV CP is currently very high, coming in at 86.75%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, MTGE's net profit margin of 54.10% significantly outperformed against the industry.
- You can view the full American Capital Mortgage Investment Ratings Report.
- 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 Energy Equipment & Services industry. The net income has significantly decreased by 36.3% when compared to the same quarter one year ago, falling from $31.10 million to $19.80 million.
- The debt-to-equity ratio is very high at 4.53 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, SDLP's quick ratio is somewhat strong at 1.02, demonstrating the ability to handle short-term liquidity needs.
- 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. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- SEADRILL PARTNERS 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. 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, SEADRILL PARTNERS LLC increased its bottom line by earning $2.29 versus $1.52 in the prior year. This year, the market expects an improvement in earnings ($2.80 versus $2.29).
- The gross profit margin for SEADRILL PARTNERS LLC is rather high; currently it is at 64.18%. 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 7.19% trails the industry average.
- You can view the full Seadrill Partners Ratings Report.
- Our dividend calendar.