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 "Hold."Western Asset Mortgage Capital Dividend Yield: 19.90% Western Asset Mortgage Capital (NYSE: WMC) shares currently have a dividend yield of 19.90%. Western Asset Mortgage Capital Corporation operates as a real estate investment trust in the United States. It primarily focuses on investing in, financing, and managing agency and non-agency residential mortgage-backed securities and commercial mortgage-backed securities. The company has a P/E ratio of 10.03. The average volume for Western Asset Mortgage Capital has been 611,700 shares per day over the past 30 days. Western Asset Mortgage Capital has a market cap of $504.7 million and is part of the real estate industry. Shares are down 18% 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 Western Asset Mortgage Capital as a hold. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- The gross profit margin for WESTERN ASSET MTG CAPITAL CP is currently very high, coming in at 335.36%. It has increased significantly from the same period last year. Along with this, the net profit margin of 68.65% significantly outperformed against the industry average.
- WESTERN ASSET MTG CAPITAL CP 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. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, WESTERN ASSET MTG CAPITAL CP turned its bottom line around by earning $2.36 versus -$1.20 in the prior year. This year, the market expects an improvement in earnings ($2.92 versus $2.36).
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, WESTERN ASSET MTG CAPITAL CP's return on equity is below that of both the industry average and the S&P 500.
- 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 102.5% when compared to the same quarter one year ago, falling from $67.57 million to -$1.69 million.
- You can view the full Western Asset Mortgage Capital Ratings Report.
- Net operating cash flow has increased to $59.20 million or 28.97% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 17.31%.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 4.5%. Since the same quarter one year prior, revenues slightly dropped by 1.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- QUAD/GRAPHICS 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, QUAD/GRAPHICS INC reported lower earnings of $0.36 versus $0.60 in the prior year. This year, the market expects an improvement in earnings ($1.06 versus $0.36).
- The debt-to-equity ratio of 1.44 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, QUAD maintains a poor quick ratio of 0.87, which illustrates the inability to avoid short-term cash problems.
- 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 Commercial Services & Supplies industry and the overall market, QUAD/GRAPHICS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Quad/Graphics Ratings Report.
- TAXI's revenue growth has slightly outpaced the industry average of 6.9%. Since the same quarter one year prior, revenues slightly increased by 9.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for MEDALLION FINANCIAL CORP is rather high; currently it is at 61.30%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 73.85% significantly outperformed against the industry average.
- TAXI'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 28.13%, 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.
- Net operating cash flow has decreased to $6.06 million or 22.72% when compared to the same quarter last year. Despite a decrease in cash flow of 22.72%, MEDALLION FINANCIAL CORP is still significantly exceeding the industry average of -410.93%.
- You can view the full Medallion Financial Ratings Report.
- Our dividend calendar.