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."ZAIS Financial Dividend Yield: 9.50% ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 9.50%. Zais Financial Corp. originates, acquires, finances, sells, services, and manages residential mortgage loans in the United States. It originates mortgage loans through its GMFS mortgage banking platform; and acquires performing, re-performing, and newly originated loans through other channels. The company has a P/E ratio of 5.42. The average volume for ZAIS Financial has been 20,500 shares per day over the past 30 days. ZAIS Financial has a market cap of $134.8 million and is part of the real estate industry. Shares are down 1.7% year-to-date as of the close of trading on Thursday. 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 ZAIS Financial as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share. Highlights from the ratings report include:
- 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 83.2% when compared to the same quarter one year ago, falling from $2.22 million to $0.37 million.
- Net operating cash flow has significantly decreased to -$30.09 million or 1904.73% 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, ZFC 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.
- ZAIS FINANCIAL 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. 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, ZAIS FINANCIAL CORP increased its bottom line by earning $2.91 versus $0.81 in the prior year. For the next year, the market is expecting a contraction of 31.3% in earnings ($2.00 versus $2.91).
- Despite its growing revenue, the company underperformed as compared with the industry average of 8.6%. Since the same quarter one year prior, revenues slightly increased by 2.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- You can view the full ZAIS Financial Ratings Report.
- Net operating cash flow has significantly decreased to $1.22 million or 81.07% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- EARN has underperformed the S&P 500 Index, declining 16.06% 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'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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ELLINGTON RESIDENTIAL MTG's return on equity is below that of both the industry average and the S&P 500.
- EARN, with its decline in revenue, underperformed when compared the industry average of 8.6%. Since the same quarter one year prior, revenues fell by 14.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for ELLINGTON RESIDENTIAL MTG is currently very high, coming in at 86.23%. Regardless of EARN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EARN's net profit margin of 35.76% significantly outperformed against the industry.
- You can view the full Ellington Residential Mortgage REIT Ratings Report.
- PENGROWTH ENERGY CORP's earnings per share declined by 36.4% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, PENGROWTH ENERGY CORP reported poor results of -$1.09 versus -$0.61 in the prior year.
- 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, PENGROWTH ENERGY CORP'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 66.39%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 36.36% 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.
- Net operating cash flow has decreased to $102.30 million or 44.12% when compared to the same quarter last year. Despite a decrease in cash flow of 44.12%, PENGROWTH ENERGY CORP is in line with the industry average cash flow growth rate of -53.24%.
- The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 38.1% when compared to the same quarter one year ago, falling from -$116.20 million to -$160.50 million.
- You can view the full Pengrowth Energy Ratings Report.
- Our dividend calendar.