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: 11.90% ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 11.90%. 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 12.41. The average volume for ZAIS Financial has been 20,900 shares per day over the past 30 days. ZAIS Financial has a market cap of $106.8 million and is part of the real estate industry. Shares are down 22.5% 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 deteriorating net income, disappointing return on equity, 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 73.9% when compared to the same quarter one year ago, falling from $23.17 million to $6.05 million.
- 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ZAIS FINANCIAL CORP's return on equity is below that of both the industry average and the S&P 500.
- The share price of ZAIS FINANCIAL CORP has not done very well: it is down 23.56% 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.
- 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 41.6% in earnings ($1.70 versus $2.91).
- ZFC, with its decline in revenue, underperformed when compared the industry average of 9.8%. Since the same quarter one year prior, revenues fell by 11.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full ZAIS Financial Ratings Report.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, GZT has underperformed the S&P 500 Index, declining 18.16% from its price level of one year ago. 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.
- GAZIT GLOBE's earnings per share declined by 16.0% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern earnings per share over the past two years. During the past fiscal year, GAZIT GLOBE reported lower earnings of $0.10 versus $1.51 in the prior year.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed compared to the Real Estate Management & Development industry average, but is greater than that of the S&P 500. The net income has decreased by 12.1% when compared to the same quarter one year ago, dropping from $43.62 million to $38.34 million.
- The debt-to-equity ratio is very high at 5.54 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.48, which clearly demonstrates the inability to cover short-term cash needs.
- 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 Management & Development industry and the overall market, GAZIT GLOBE's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Gazit-Globe Ratings Report.
- The gross profit margin for CITY OFFICE REIT INC is rather low; currently it is at 17.94%. Regardless of CIO's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, CIO's net profit margin of -15.44% significantly underperformed when compared to the industry average.
- CIO has underperformed the S&P 500 Index, declining 16.00% 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, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Real Estate Investment Trusts (REITs) industry average, but is greater than that of the S&P 500. The net income increased by 17.7% when compared to the same quarter one year prior, going from -$2.18 million to -$1.80 million.
- Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CITY OFFICE REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly increased by 62.43% to $2.91 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 16.32%.
- You can view the full City Office REIT Ratings Report.
- Our dividend calendar.