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: 11.50% New Residential Investment (NYSE: NRZ) shares currently have a dividend yield of 11.50%. 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 5.10. The average volume for New Residential Investment has been 1,711,400 shares per day over the past 30 days. New Residential Investment has a market cap of $1.7 billion and is part of the real estate industry. Shares are up 85% 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 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 22.9% in earnings ($1.51 versus $1.96).
- NRZ has underperformed the S&P 500 Index, declining 12.65% from its price level of one year ago.
- 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.
- 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 significantly decreased by 160.2% when compared to the same quarter one year ago, falling from $345.16 million to -$207.87 million.
- Currently the debt-to-equity ratio of 1.87 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. To add to this, LINE has a quick ratio of 0.56, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LINN ENERGY LLC's return on equity significantly trails that of both the industry average and the S&P 500.
- The share price of LINN ENERGY LLC has not done very well: it is down 6.59% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.
- LINN ENERGY 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, LINN ENERGY LLC reported poor results of -$2.78 versus -$1.86 in the prior year. This year, the market expects an improvement in earnings ($1.55 versus -$2.78).
- You can view the full Linn Energy 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 31.9% when compared to the same quarter one year ago, falling from $45.80 million to $31.20 million.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, SDLP has underperformed the S&P 500 Index, declining 11.87% from its price level of one year ago. 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 debt-to-equity ratio is very high at 3.33 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, SDLP has managed to keep a strong quick ratio of 2.02, which demonstrates the ability to cover short-term cash needs.
- 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. Compared to other companies in the Energy Equipment & Services industry and the overall market on the basis of return on equity, SEADRILL PARTNERS LLC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- SEADRILL PARTNERS LLC's earnings per share declined by 21.1% 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, SEADRILL PARTNERS LLC increased its bottom line by earning $2.04 versus $1.52 in the prior year. This year, the market expects an improvement in earnings ($2.42 versus $2.04).
- You can view the full Seadrill Partners Ratings Report.
- Our dividend calendar.