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: 13.40% PennyMac Mortgage Investment (NYSE: PMT) shares currently have a dividend yield of 13.40%. PennyMac Mortgage Investment Trust, a specialty finance company, invests primarily in residential mortgage loans and mortgage-related assets in the United States. The company operates through two segments, Correspondent Production and Investment Activities. The company has a P/E ratio of 8.86. The average volume for PennyMac Mortgage Investment has been 561,700 shares per day over the past 30 days. PennyMac Mortgage Investment has a market cap of $1.4 billion and is part of the real estate industry. Shares are down 13.4% 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 PennyMac Mortgage Investment as a hold. Among the primary strengths of the company is its reasonable valuation levels, considering its current price compared to earnings, book value and other measures. At the same time, however, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- The revenue fell significantly faster than the industry average of 8.4%. Since the same quarter one year prior, revenues fell by 34.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The share price of PENNYMAC MORTGAGE INVEST TR has not done very well: it is down 12.36% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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'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.
- The gross profit margin for PENNYMAC MORTGAGE INVEST TR is currently lower than what is desirable, coming in at 34.58%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 11.84% significantly trails the industry average.
- You can view the full PennyMac Mortgage Investment Ratings Report.