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 "Hold."PennyMac Mortgage Investment Dividend Yield: 11.40% PennyMac Mortgage Investment (NYSE: PMT) shares currently have a dividend yield of 11.40%. PennyMac Mortgage Investment Trust, a specialty finance company, through its subsidiaries, invests primarily in residential mortgage loans and mortgage-related assets. The company operates through two segments, Correspondent Lending and Investment Activities. The company has a P/E ratio of 8.64. The average volume for PennyMac Mortgage Investment has been 481,000 shares per day over the past 30 days. PennyMac Mortgage Investment has a market cap of $1.6 billion and is part of the real estate industry. Shares are up 1.2% year-to-date as of the close of trading on Thursday. EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE. TheStreet Ratings rates PennyMac Mortgage Investment as a hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- 45.17% is the gross profit margin for PENNYMAC MORTGAGE INVEST TR which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, PMT's net profit margin of 35.35% compares favorably to the industry average.
- The revenue fell significantly faster than the industry average of 10.1%. Since the same quarter one year prior, revenues fell by 35.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 49.7% when compared to the same quarter one year ago, falling from $52.70 million to $26.51 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, PENNYMAC MORTGAGE INVEST TR's return on equity is below that of both the industry average and the S&P 500.
- You can view the full PennyMac Mortgage Investment Ratings Report.
- The gross profit margin for MFA FINANCIAL INC is currently very high, coming in at 89.72%. Regardless of MFA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MFA's net profit margin of 64.36% significantly outperformed against the industry.
- Net operating cash flow has increased to $78.31 million or 10.36% when compared to the same quarter last year. Despite an increase in cash flow, MFA FINANCIAL INC's average is still marginally south of the industry average growth rate of 11.97%.
- The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Real Estate Investment Trusts (REITs) industry average. The net income increased by 1.5% when compared to the same quarter one year prior, going from $78.56 million to $79.71 million.
- MFA FINANCIAL INC reported flat earnings per share in the most recent quarter. Stable earnings per share over the past year indicate the company has managed its earnings and share float. We anticipate this stability to falter in the coming year and, in turn, the company to deliver lower earnings per share than prior full year. During the past fiscal year, MFA FINANCIAL INC increased its bottom line by earning $0.80 versus $0.79 in the prior year. For the next year, the market is expecting a contraction of 4.4% in earnings ($0.77 versus $0.80).
- You can view the full MFA Financial Ratings Report.
- RESI's very impressive revenue growth greatly exceeded the industry average of 10.1%. Since the same quarter one year prior, revenues leaped by 191.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, ALTISOURCE RESIDENTIAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- ALTISOURCE RESIDENTIAL CORP has improved earnings per share by 44.0% 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, ALTISOURCE RESIDENTIAL CORP increased its bottom line by earning $3.33 versus $1.16 in the prior year. For the next year, the market is expecting a contraction of 55.3% in earnings ($1.49 versus $3.33).
- RESI'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 31.83%, 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.
- You can view the full Altisource Residential Corporation Ratings Report.
- Our dividend calendar.