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." Ellington Residential Mortgage REIT Dividend Yield: 13.40% Ellington Residential Mortgage REIT (NYSE: EARN) shares currently have a dividend yield of 13.40%. Ellington Residential Mortgage REIT is a real estate investment trust. The company has a P/E ratio of 9.25. The average volume for Ellington Residential Mortgage REIT has been 42,000 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $149.9 million and is part of the real estate industry. Shares are up 0.9% year-to-date as of the close of trading on Friday. 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 Ellington Residential Mortgage REIT 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 840.8% when compared to the same quarter one year ago, falling from -$0.13 million to -$1.18 million.
- In its most recent trading session, EARN 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. 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.
- The gross profit margin for ELLINGTON RESIDENTIAL MTG is currently very high, coming in at 85.20%. Regardless of EARN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EARN's net profit margin of -9.96% significantly underperformed when compared to the industry average.
- EARN, with its decline in revenue, underperformed when compared the industry average of 9.8%. Since the same quarter one year prior, revenues slightly dropped by 2.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ELLINGTON RESIDENTIAL MTG's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Ellington Residential Mortgage REIT Ratings Report.