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: 11.50% ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 11.50%. 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 12.85. The average volume for ZAIS Financial has been 20,800 shares per day over the past 30 days. ZAIS Financial has a market cap of $110.6 million and is part of the real estate industry. Shares are down 19.5% 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 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 24.28% 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.
- 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.
- 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. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, TRONOX LTD reported poor results of -$3.73 versus -$1.10 in the prior year. This year, the market expects an improvement in earnings (-$1.23 versus -$3.73).
- You can view the full Tronox Ratings Report.
- 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, CHERRY HILL MTG INVST's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $0.09 million or 97.24% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- CHMI has underperformed the S&P 500 Index, declining 18.06% 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.
- CHERRY HILL MTG INVST reported significant earnings per share improvement in the most recent quarter compared to 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, CHERRY HILL MTG INVST reported lower earnings of $0.31 versus $2.83 in the prior year. This year, the market expects an improvement in earnings ($2.00 versus $0.31).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 1818.6% when compared to the same quarter one year prior, rising from -$0.65 million to $11.21 million.
- You can view the full Cherry Hill Mortgage Investment Ratings Report.
- Our dividend calendar.