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."ZAIS Financial Dividend Yield: 9.10% ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 9.10%. Zais Financial Corp. invests in, finances, and manages performing and re-performing residential mortgage loans. The company also invests in, finances, and manages residential mortgage-backed securities (RMBS) that are not issued or guaranteed by a federally chartered corporation. The company has a P/E ratio of 4.26. The average volume for ZAIS Financial has been 32,100 shares per day over the past 30 days. ZAIS Financial has a market cap of $139.6 million and is part of the real estate industry. Shares are up 10.5% 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 ZAIS Financial as a sell. Among the areas we feel are negative, one of the most important has been unimpressive growth in net income over time. 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 69.0% when compared to the same quarter one year ago, falling from $3.72 million to $1.15 million.
- Compared to where it was a year ago, the stock is now trading at a higher level, and has traded in line with the S&P 500. 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.
- ZAIS FINANCIAL CORP 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, ZAIS FINANCIAL CORP increased its bottom line by earning $0.81 versus $0.23 in the prior year. This year, the market expects an improvement in earnings ($1.27 versus $0.81).
- The gross profit margin for ZAIS FINANCIAL CORP is rather high; currently it is at 68.88%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, ZFC's net profit margin of 10.45% significantly trails the industry average.
- Net operating cash flow has significantly increased by 147.05% to $4.16 million when compared to the same quarter last year. In addition, ZAIS FINANCIAL CORP has also vastly surpassed the industry average cash flow growth rate of 6.59%.
- You can view the full ZAIS Financial Ratings Report.
- DESWELL INDUSTRIES INC's earnings per share declined by 25.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, DESWELL INDUSTRIES INC reported poor results of -$0.47 versus -$0.12 in the prior year.
- 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 Electronic Equipment, Instruments & Components industry. The net income has significantly decreased by 38.6% when compared to the same quarter one year ago, falling from -$1.23 million to -$1.70 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Electronic Equipment, Instruments & Components industry and the overall market, DESWELL INDUSTRIES INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for DESWELL INDUSTRIES INC is currently extremely low, coming in at 6.82%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -16.69% is significantly below that of the industry average.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, DSWL has underperformed the S&P 500 Index, declining 15.86% 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.
- You can view the full Deswell Industries Ratings Report.
- In its most recent trading session, STB 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. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Road & Rail industry and the overall market, STUDENT TRANSPORTATION 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 -$23.24 million or 10.11% 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.
- The gross profit margin for STUDENT TRANSPORTATION INC is currently extremely low, coming in at 9.99%. Regardless of STB's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, STB's net profit margin of -9.88% significantly underperformed when compared to the industry average.
- STUDENT TRANSPORTATION INC reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern earnings per share over the past two years. During the past fiscal year, STUDENT TRANSPORTATION INC reported lower earnings of $0.02 versus $0.04 in the prior year.
- You can view the full Student Transportation Ratings Report.
- Our dividend calendar.