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." Cliffs Natural Resources Dividend Yield: 5.80% Cliffs Natural Resources (NYSE: CLF) shares currently have a dividend yield of 5.80%. Cliffs Natural Resources Inc., a mining and natural resources company, produces iron ore and metallurgical coal. The average volume for Cliffs Natural Resources has been 10,933,800 shares per day over the past 30 days. Cliffs Natural Resources has a market cap of $1.6 billion and is part of the metals & mining industry. Shares are down 59.2% year-to-date as of the close of trading on Friday. 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 Cliffs Natural Resources as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow 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 Metals & Mining industry. The net income has significantly decreased by 5116.7% when compared to the same quarter one year ago, falling from $117.20 million to -$5,879.60 million.
- The debt-to-equity ratio is very high at 105.77 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.39, which clearly demonstrates the inability 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 Metals & Mining industry and the overall market, CLIFFS NATURAL RESOURCES INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $227.90 million or 23.26% when compared to the same quarter last year. Despite a decrease in cash flow CLIFFS NATURAL RESOURCES INC is still fairing well by exceeding its industry average cash flow growth rate of -55.48%.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 62.14%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 6021.53% 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.
- You can view the full Cliffs Natural Resources 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, INVESCO MORTGAGE CAPITAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
- IVR, with its decline in revenue, underperformed when compared the industry average of 13.8%. Since the same quarter one year prior, revenues slightly dropped by 1.3%. The declining revenue has not hurt the company's bottom line, with increasing 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. 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.
- INVESCO MORTGAGE CAPITAL 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, INVESCO MORTGAGE CAPITAL INC reported lower earnings of $0.90 versus $2.89 in the prior year. This year, the market expects an improvement in earnings ($1.87 versus $0.90).
- The gross profit margin for INVESCO MORTGAGE CAPITAL INC is currently very high, coming in at 92.33%. 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 19.96% trails the industry average.
- You can view the full Invesco Mortgage Capital Ratings Report.
- QIWI'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 29.25%, 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. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- QIWI PLC -ADR reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.37 versus $0.86).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the IT Services industry. The net income increased by 69.5% when compared to the same quarter one year prior, rising from $13.36 million to $22.64 million.
- QIWI's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.22, which illustrates the ability to avoid short-term cash problems.
- In comparison to other companies in the IT Services industry and the overall market on the basis of return on equity, QIWI PLC -ADR has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- You can view the full QIWI Ratings Report.
- Our dividend calendar.