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."Western Asset Mortgage Capital Dividend Yield: 18.10% Western Asset Mortgage Capital (NYSE: WMC) shares currently have a dividend yield of 18.10%. Western Asset Mortgage Capital Corporation operates as a real estate investment trust in the United States. It primarily focuses on investing in, financing, and managing agency and non-agency residential mortgage-backed securities and commercial mortgage-backed securities. The company has a P/E ratio of 4.45. The average volume for Western Asset Mortgage Capital has been 612,100 shares per day over the past 30 days. Western Asset Mortgage Capital has a market cap of $621.3 million and is part of the real estate industry. Shares are up 0.8% year-to-date as of the close of trading on Monday. 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 Western Asset Mortgage Capital as a sell. The area that we feel has been the company's primary weakness has been its relatively poor performance when compared with the S&P 500 during the past year. Highlights from the ratings report include:
- In its most recent trading session, WMC 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 WESTERN ASSET MTG CAPITAL CP is currently very high, coming in at 92.52%. Regardless of WMC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 19.00% trails the industry average.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, WESTERN ASSET MTG CAPITAL CP's return on equity exceeds that of both the industry average and the S&P 500.
- WESTERN ASSET MTG CAPITAL CP 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 year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, WESTERN ASSET MTG CAPITAL CP turned its bottom line around by earning $2.36 versus -$1.20 in the prior year. This year, the market expects an improvement in earnings ($2.58 versus $2.36).
- You can view the full Western Asset Mortgage Capital Ratings Report.
- Currently the debt-to-equity ratio of 1.93 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. 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.
- DLNG has underperformed the S&P 500 Index, declining 14.76% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- The gross profit margin for DYNAGAS LNG PARTNERS LP is currently very high, coming in at 82.64%. Regardless of DLNG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DLNG's net profit margin of 42.11% significantly outperformed against the industry.
- Net operating cash flow has significantly increased by 163.85% to $20.61 million when compared to the same quarter last year. In addition, DYNAGAS LNG PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of -51.31%.
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, DYNAGAS LNG PARTNERS LP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full Dynagas LNG Partners Ratings Report.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 43608.4% when compared to the same quarter one year ago, falling from $0.53 million to -$228.85 million.
- The debt-to-equity ratio is very high at 2.67 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, LGCY maintains a poor quick ratio of 0.74, which illustrates the inability to avoid short-term cash problems.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, LEGACY RESERVES LP's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 56.88%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 34000.00% 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.
- LEGACY RESERVES LP 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, LEGACY RESERVES LP reported poor results of -$4.24 versus -$0.62 in the prior year. This year, the market expects an improvement in earnings (-$0.83 versus -$4.24).
- You can view the full Legacy Reserves Ratings Report.
- Our dividend calendar.