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."Ellington Residential Mortgage REIT Dividend Yield: 16.90% Ellington Residential Mortgage REIT (NYSE: EARN) shares currently have a dividend yield of 16.90%. Ellington Residential Mortgage REIT, a real estate investment trust, specializes in acquiring, investing in, and managing residential mortgage-and real estate-related assets. The company has a P/E ratio of 19.12. The average volume for Ellington Residential Mortgage REIT has been 51,200 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $118.9 million and is part of the real estate industry. Shares are down 19.8% 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 Ellington Residential Mortgage REIT as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself. 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 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.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 25.86%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 98.34% 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.
- 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 50.38% to its most recent closing price of 6.58. 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 15.97%.
- You can view the full JAVELIN Mortgage Investment Ratings Report.
- Net operating cash flow has significantly decreased to -$168.86 million or 241.50% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- LADR has underperformed the S&P 500 Index, declining 16.89% 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.
- LADR, with its decline in revenue, underperformed when compared the industry average of 9.7%. Since the same quarter one year prior, revenues slightly dropped by 2.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, LADDER CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.
- The gross profit margin for LADDER CAPITAL CORP is currently very high, coming in at 71.06%. 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 28.79% trails the industry average.
- You can view the full Ladder Capital Ratings Report.
- Our dividend calendar.