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."American Capital Mortgage Investment Dividend Yield: 10.80% American Capital Mortgage Investment (NASDAQ: MTGE) shares currently have a dividend yield of 10.80%. American Capital Mortgage Investment Corp. operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 59.44. The average volume for American Capital Mortgage Investment has been 554,900 shares per day over the past 30 days. American Capital Mortgage Investment has a market cap of $760.7 million and is part of the real estate industry. Shares are down 22.1% 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 American Capital Mortgage Investment 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 389.5% when compared to the same quarter one year ago, falling from $8.29 million to -$24.01 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 Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN CAPITAL MTG INV CP's return on equity significantly trails 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 26.69%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 450.00% 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.
- AMERICAN CAPITAL MTG INV 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. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, AMERICAN CAPITAL MTG INV CP turned its bottom line around by earning $3.06 versus -$1.58 in the prior year. For the next year, the market is expecting a contraction of 36.3% in earnings ($1.95 versus $3.06).
- The gross profit margin for AMERICAN CAPITAL MTG INV CP is rather high; currently it is at 69.49%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -33.79% is in-line with the industry average.
- You can view the full American Capital Mortgage Investment Ratings Report.
- STB'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 33.39%, 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. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, STB is still more expensive than most of the other companies in its industry.
- The gross profit margin for STUDENT TRANSPORTATION INC is currently lower than what is desirable, coming in at 25.81%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.57% significantly trails the industry average.
- Net operating cash flow has declined marginally to $33.29 million or 0.22% when compared to the same quarter last year. Despite a decrease in cash flow of 0.22%, STUDENT TRANSPORTATION INC is in line with the industry average cash flow growth rate of -3.83%.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Road & Rail industry and the overall market, STUDENT TRANSPORTATION INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Even though the current debt-to-equity ratio is 1.03, it is still below the industry average, suggesting that this level of debt is acceptable within the Road & Rail industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.92 is weak.
- You can view the full Student Transportation 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 the cash generation rate to the industry average, the firm's growth is significantly lower.
- CHMI has underperformed the S&P 500 Index, declining 19.52% 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.