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."Capstead Mortgage Dividend Yield: 10.60% Capstead Mortgage (NYSE: CMO) shares currently have a dividend yield of 10.60%. Capstead Mortgage Corporation operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 9.16. The average volume for Capstead Mortgage has been 777,900 shares per day over the past 30 days. Capstead Mortgage has a market cap of $1.1 billion and is part of the real estate industry. Shares are down 4.5% 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 Capstead Mortgage as a hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- The gross profit margin for CAPSTEAD MORTGAGE CORP is currently very high, coming in at 94.05%. Regardless of CMO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CMO's net profit margin of 57.75% significantly outperformed against the industry.
- CMO, with its decline in revenue, slightly underperformed the industry average of 8.5%. Since the same quarter one year prior, revenues slightly dropped by 1.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, CMO has underperformed the S&P 500 Index, declining 9.29% 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.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Real Estate Investment Trusts (REITs) industry average, but is greater than that of the S&P 500. The net income has decreased by 11.5% when compared to the same quarter one year ago, dropping from $38.39 million to $33.96 million.
- You can view the full Capstead Mortgage Ratings Report.
- OFS's very impressive revenue growth greatly exceeded the industry average of 5.4%. Since the same quarter one year prior, revenues leaped by 56.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- OFS CAPITAL CORP 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, OFS CAPITAL CORP increased its bottom line by earning $1.03 versus $0.81 in the prior year. This year, the market expects an improvement in earnings ($1.28 versus $1.03).
- In its most recent trading session, OFS 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.
- Net operating cash flow has significantly decreased to -$50.82 million or 728.50% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full OFS Capital Ratings Report.
- The gross profit margin for AG MORTGAGE INVESTMENT TRUST is currently very high, coming in at 77.50%. Regardless of MITT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MITT's net profit margin of 46.22% significantly outperformed against the industry.
- The revenue fell significantly faster than the industry average of 8.5%. Since the same quarter one year prior, revenues fell by 29.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- AG MORTGAGE INVESTMENT TRUST 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. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, AG MORTGAGE INVESTMENT TRUST turned its bottom line around by earning $3.38 versus -$1.60 in the prior year. For the next year, the market is expecting a contraction of 26.3% in earnings ($2.49 versus $3.38).
- 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 59.1% when compared to the same quarter one year ago, falling from $31.19 million to $12.76 million.
- You can view the full AG Mortgage Investment Ratings Report.
- Our dividend calendar.