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: 16.50% Western Asset Mortgage Capital (NYSE: WMC) shares currently have a dividend yield of 16.50%. 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 4.65. The average volume for Western Asset Mortgage Capital has been 515,000 shares per day over the past 30 days. Western Asset Mortgage Capital has a market cap of $648.5 million and is part of the real estate industry. Shares are up 5.2% 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 poor profit margins. Highlights from the ratings report include:
- 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.
- Net operating cash flow has significantly increased by 126.32% to $26.06 million when compared to the same quarter last year. In addition, WESTERN ASSET MTG CAPITAL CP has also vastly surpassed the industry average cash flow growth rate of 0.89%.
- 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.
- Compared to where it was a year ago today, the stock is now trading at a higher level, and has traded in line with the S&P 500. 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.
- You can view the full Western Asset Mortgage Capital Ratings Report.
- The share price of WI-LAN INC has not done very well: it is down 19.42% 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. 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.
- 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 Communications Equipment industry. The net income has significantly decreased by 219.9% when compared to the same quarter one year ago, falling from $3.97 million to -$4.76 million.
- Net operating cash flow has significantly decreased to $2.36 million or 88.96% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Communications Equipment industry and the overall market on the basis of return on equity, WI-LAN INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- 48.06% is the gross profit margin for WI-LAN INC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, WILN's net profit margin of -23.31% significantly underperformed when compared to the industry average.
- You can view the full Wi-Lan 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 221.9% when compared to the same quarter one year ago, falling from $13.37 million to -$16.31 million.
- 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ANWORTH MTG ASSET CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $6.47 million or 55.40% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- In its most recent trading session, ANH 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.
- ANWORTH MTG ASSET CORP 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, ANWORTH MTG ASSET CORP reported lower earnings of $0.18 versus $0.49 in the prior year. This year, the market expects an improvement in earnings ($0.29 versus $0.18).
- You can view the full Anworth Mortgage Asset Ratings Report.
- Our dividend calendar.