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."Tronox Dividend Yield: 12.60% Tronox (NYSE: TROX) shares currently have a dividend yield of 12.60%. Tronox Limited produces and markets titanium bearing mineral sands and titanium dioxide (TiO2) pigment in North America, Europe, South Africa, and the Asia-Pacific region. It primarily operates in two segments, Mineral Sands and Pigment. The average volume for Tronox has been 798,000 shares per day over the past 30 days. Tronox has a market cap of $519.6 million and is part of the chemicals industry. Shares are down 68.8% 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 Tronox as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, poor profit margins and generally high debt management risk. Highlights from the ratings report include:
- TRONOX LTD's earnings have gone downhill when comparing its most recently reported quarter with the same quarter a year earlier. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, TRONOX LTD reported poor results of -$3.73 versus -$1.10 in the prior year.
- The company's net income has fallen into negative territory during the last reported quarter when compared with the same quarter a year earlier. However, since the company had zero dollars in a net income for the prior period, we are unable to calculate a percent change in order to compare its growth rate with that of its industry average.
- 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 Chemicals industry and the overall market, TRONOX LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for TRONOX LTD is rather low; currently it is at 16.37%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -19.28% is significantly below that of the industry average.
- The debt-to-equity ratio is very high at 2.30 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, TROX's quick ratio is somewhat strong at 1.22, demonstrating the ability to handle short-term liquidity needs.
- You can view the full Tronox 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 98.3% when compared to the same quarter one year ago, falling from $11.05 million to $0.19 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. 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.
- The share price of ELLINGTON RESIDENTIAL MTG has not done very well: it is down 23.69% 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.
- EARN, with its decline in revenue, underperformed when compared the industry average of 9.7%. Since the same quarter one year prior, revenues fell by 15.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for ELLINGTON RESIDENTIAL MTG is currently very high, coming in at 87.15%. 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 1.93% is significantly lower than the industry average.
- You can view the full Ellington Residential Mortgage REIT Ratings Report.
- 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, JAVELIN MORTGAGE INVESTMENT's return on equity significantly trails that of both the industry average and the S&P 500.
- The revenue fell significantly faster than the industry average of 9.7%. Since the same quarter one year prior, revenues fell by 35.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- Compared to where it was trading one year ago, JMI is down 46.73% to its most recent closing price of 7.08. Looking ahead, our view is that this stock still does not have good upside potential and may even suffer further declines.
- The gross profit margin for JAVELIN MORTGAGE INVESTMENT is currently very high, coming in at 80.25%. Regardless of JMI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, JMI's net profit margin of 194.48% significantly outperformed against the industry.
- Net operating cash flow has significantly increased by 69.81% to $4.17 million when compared to the same quarter last year. In addition, JAVELIN MORTGAGE INVESTMENT has also vastly surpassed the industry average cash flow growth rate of 15.86%.
- You can view the full JAVELIN Mortgage Investment Ratings Report.
- Our dividend calendar.