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: 14.10% Ellington Residential Mortgage REIT (NYSE: EARN) shares currently have a dividend yield of 14.10%. 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 18.82. The average volume for Ellington Residential Mortgage REIT has been 50,700 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $117.1 million and is part of the real estate industry. Shares are down 21.7% year-to-date as of the close of trading on Wednesday. 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.
- The share price of ELLINGTON RESIDENTIAL MTG has not done very well: it is down 22.12% 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 9.8%. 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 gross profit margin for CYPRESS ENERGY PARTNERS LP is currently extremely low, coming in at 11.83%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.12% trails that of the industry average.
- Net operating cash flow has decreased to $7.15 million or 26.76% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- The debt-to-equity ratio is very high at 3.41 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 4.34, which shows the ability to cover short-term cash needs.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 46.25%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 41.93% 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.
- The change in net income from the same quarter one year ago has exceeded that of the Commercial Services & Supplies industry average, but is less than that of the S&P 500. The net income has significantly decreased by 47.4% when compared to the same quarter one year ago, falling from $3.68 million to $1.94 million.
- You can view the full Cypress Energy Partners Ratings Report.
- PENGROWTH ENERGY 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. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, PENGROWTH ENERGY CORP reported poor results of -$1.09 versus -$0.61 in the prior year.
- 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 1427.3% when compared to the same quarter one year ago, falling from -$8.80 million to -$134.40 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PENGROWTH ENERGY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for PENGROWTH ENERGY CORP is rather low; currently it is at 15.47%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -94.05% is significantly below that of the industry average.
- Net operating cash flow has decreased to $97.50 million or 10.87% when compared to the same quarter last year. Despite a decrease in cash flow of 10.87%, PENGROWTH ENERGY CORP is in line with the industry average cash flow growth rate of -19.64%.
- You can view the full Pengrowth Energy Ratings Report.
- Our dividend calendar.