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." Western Asset Mortgage Capital Dividend Yield: 18.50% Western Asset Mortgage Capital (NYSE: WMC) shares currently have a dividend yield of 18.50%. Western Asset Mortgage Capital Corporation operates as a real estate investment trust in the United States. It primarily focuses on investing in, financing, and managing agency and non-agency residential mortgage-backed securities and commercial mortgage-backed securities. The company has a P/E ratio of 5.21. The average volume for Western Asset Mortgage Capital has been 732,900 shares per day over the past 30 days. Western Asset Mortgage Capital has a market cap of $632.5 million and is part of the real estate industry. Shares are up 1.9% year-to-date as of the close of trading on Monday. 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 Western Asset Mortgage Capital as a sell. The area that we feel has been the company's primary weakness has been its relatively poor performance when compared with the S&P 500 during the past year. Highlights from the ratings report include:
- In its most recent trading session, WMC 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.
- WESTERN ASSET MTG CAPITAL 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, WESTERN ASSET MTG CAPITAL CP swung to a loss, reporting -$1.20 versus $3.76 in the prior year. This year, the market expects an improvement in earnings ($2.64 versus -$1.20).
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, WESTERN ASSET MTG CAPITAL CP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Net operating cash flow has increased to $47.65 million or 14.98% when compared to the same quarter last year. Despite an increase in cash flow, WESTERN ASSET MTG CAPITAL CP's average is still marginally south of the industry average growth rate of 19.03%.
- The gross profit margin for WESTERN ASSET MTG CAPITAL CP is currently very high, coming in at 96.60%. Regardless of WMC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WMC's net profit margin of 46.55% significantly outperformed against the industry.
- You can view the full Western Asset Mortgage Capital Ratings Report.