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."Bank of Nova Scotia Dividend Yield: 4.40% Bank of Nova Scotia (NYSE: BNS) shares currently have a dividend yield of 4.40%. The Bank of Nova Scotia provides various personal, commercial, corporate, and investment banking services in Canada and internationally. The company has a P/E ratio of 10.46. The average volume for Bank of Nova Scotia has been 717,300 shares per day over the past 30 days. Bank of Nova Scotia has a market cap of $60.0 billion and is part of the banking industry. Shares are down 12.3% 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 Bank of Nova Scotia as a sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- Net operating cash flow has significantly decreased to -$2,077.00 million or 128.90% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- BNS's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 26.74%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
- BANK OF NOVA SCOTIA's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past year. During the past fiscal year, BANK OF NOVA SCOTIA increased its bottom line by earning $5.66 versus $1.29 in the prior year.
- The gross profit margin for BANK OF NOVA SCOTIA is currently very high, coming in at 73.25%. Regardless of BNS'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 22.96% trails the industry average.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Commercial Banks industry average. The net income increased by 0.9% when compared to the same quarter one year prior, going from $1,742.00 million to $1,757.00 million.
- You can view the full Bank of Nova Scotia Ratings Report.
- 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, INVESCO MORTGAGE CAPITAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has declined marginally to $87.42 million or 1.82% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, INVESCO MORTGAGE CAPITAL INC has marginally lower results.
- IVR has underperformed the S&P 500 Index, declining 13.89% 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.
- INVESCO MORTGAGE CAPITAL INC 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, INVESCO MORTGAGE CAPITAL INC swung to a loss, reporting -$1.75 versus $0.90 in the prior year. This year, the market expects an improvement in earnings ($1.93 versus -$1.75).
- The gross profit margin for INVESCO MORTGAGE CAPITAL INC is currently very high, coming in at 92.63%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -15.03% is in-line with the industry average.
- You can view the full Invesco Mortgage Capital 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 284.8% when compared to the same quarter one year ago, falling from $58.31 million to -$107.75 million.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 69.29%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 282.35% 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 $137.76 million or 35.88% when compared to the same quarter last year. Despite a decrease in cash flow DENBURY RESOURCES INC is still fairing well by exceeding its industry average cash flow growth rate of -53.30%.
- DENBURY RESOURCES INC 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, DENBURY RESOURCES INC increased its bottom line by earning $1.82 versus $1.11 in the prior year. For the next year, the market is expecting a contraction of 78.6% in earnings ($0.39 versus $1.82).
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, DENBURY RESOURCES INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full Denbury Resources Ratings Report.
- Our dividend calendar.