3 Hold-Rated Dividend Stocks: CMO, ALDW, SSW

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer

TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.

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: 10.40%

Capstead Mortgage (NYSE: CMO) shares currently have a dividend yield of 10.40%.

Capstead Mortgage Corporation operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 9.32.

The average volume for Capstead Mortgage has been 765,900 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 3% year-to-date as of the close of trading on Tuesday.

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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 8.4%. 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 7.67% 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.

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Alon USA Partners

Dividend Yield: 13.20%

Alon USA Partners (NYSE: ALDW) shares currently have a dividend yield of 13.20%.

Alon USA Partners, LP refines and markets petroleum products primarily in the South Central and Southwestern regions of the United States. The company owns and operates a crude oil refinery in Big Spring, Texas with crude oil throughput capacity of 73,000 barrels per day. The company has a P/E ratio of 8.27.

The average volume for Alon USA Partners has been 239,700 shares per day over the past 30 days. Alon USA Partners has a market cap of $1.3 billion and is part of the energy industry. Shares are up 65% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Alon USA Partners as a hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, attractive valuation levels and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, weak operating cash flow and poor profit margins.

Highlights from the ratings report include:
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, ALON USA PARTNERS LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • Net operating cash flow has decreased to $27.09 million or 40.16% when compared to the same quarter last year. Despite a decrease in cash flow ALON USA PARTNERS LP is still fairing well by exceeding its industry average cash flow growth rate of -53.10%.
  • Currently the debt-to-equity ratio of 1.61 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated.

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Seaspan

Dividend Yield: 7.50%

Seaspan (NYSE: SSW) shares currently have a dividend yield of 7.50%.

Seaspan Corporation operates as an independent charter owner and manager of containerships in Hong Kong. The company charters its containerships pursuant to long-term, fixed-rate time charters to various container liner companies. As of February 28, 2015, it operated a fleet of 77 vessels. The company has a P/E ratio of 15.62.

The average volume for Seaspan has been 174,400 shares per day over the past 30 days. Seaspan has a market cap of $2.0 billion and is part of the transportation industry. Shares are up 10.8% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Seaspan as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 1.9%. Since the same quarter one year prior, revenues rose by 12.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Marine industry. The net income increased by 18.3% when compared to the same quarter one year prior, going from $18.03 million to $21.33 million.
  • SEASPAN CORP reported significant earnings per share improvement in the most recent quarter compared to 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, SEASPAN CORP reported lower earnings of $0.78 versus $2.94 in the prior year. This year, the market expects an improvement in earnings ($1.10 versus $0.78).
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Marine industry and the overall market, SEASPAN CORP's return on equity is below that of both the industry average and the S&P 500.
  • SSW has underperformed the S&P 500 Index, declining 9.36% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.

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