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."Transocean Dividend Yield: 10.20% Transocean (NYSE: RIG) shares currently have a dividend yield of 10.20%. Transocean Ltd., together with its subsidiaries, provides offshore contract drilling services for oil and gas wells worldwide. The company provides deepwater and harsh environment drilling, oil and gas drilling management, and drilling engineering and drilling project management services. The average volume for Transocean has been 10,222,600 shares per day over the past 30 days. Transocean has a market cap of $10.6 billion and is part of the energy industry. Shares are down 41.9% year-to-date as of the close of trading on Tuesday. 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 Transocean as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- 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 506.0% when compared to the same quarter one year ago, falling from $546.00 million to -$2,217.00 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. Compared to other companies in the Energy Equipment & Services industry and the overall market, TRANSOCEAN LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 45.22%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 513.51% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- RIG, with its decline in revenue, underperformed when compared the industry average of 14.5%. Since the same quarter one year prior, revenues slightly dropped by 7.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- RIG's debt-to-equity ratio of 0.71 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.42 is sturdy.
- You can view the full Transocean Ratings Report.
- 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 Real Estate Investment Trusts (REITs) industry and the overall market, ARMOUR RESIDENTIAL REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $39.43 million or 54.29% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- In its most recent trading session, ARR 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.
- ARMOUR RESIDENTIAL REIT INC 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, ARMOUR RESIDENTIAL REIT INC swung to a loss, reporting -$0.53 versus $0.97 in the prior year. This year, the market expects an improvement in earnings ($0.53 versus -$0.53).
- The gross profit margin for ARMOUR RESIDENTIAL REIT INC is currently very high, coming in at 90.86%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, ARR's net profit margin of 55.09% significantly outperformed against the industry.
- You can view the full ARMOUR Residential REIT Ratings Report.
- The debt-to-equity ratio is very high at 3.63 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, XCO has a quick ratio of 0.60, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- XCO's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 43.45%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, EXCO RESOURCES INC's return on equity significantly trails that of both the industry average and the S&P 500.
- EXCO RESOURCES INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, EXCO RESOURCES INC turned its bottom line around by earning $0.11 versus -$6.51 in the prior year. For the next year, the market is expecting a contraction of 13.6% in earnings ($0.10 versus $0.11).
- XCO, with its decline in revenue, slightly underperformed the industry average of 6.7%. Since the same quarter one year prior, revenues slightly dropped by 8.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full EXCO Resources Ratings Report.
- Our dividend calendar.