3 Hold-Rated Dividend Stocks: TAXI, WMC, WSR

TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.

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."

Medallion Financial

Dividend Yield: 12.60%

Medallion Financial (NASDAQ: TAXI) shares currently have a dividend yield of 12.60%.

Medallion Financial Corp., through its subsidiaries, operates as a specialty finance company in the United States. The company engages in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. The company has a P/E ratio of 6.39.

The average volume for Medallion Financial has been 326,500 shares per day over the past 30 days. Medallion Financial has a market cap of $192.8 million and is part of the financial services industry. Shares are down 20.5% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Medallion Financial as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, expanding profit margins and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 9.2% when compared to the same quarter one year prior, going from $6.69 million to $7.31 million.
  • The gross profit margin for MEDALLION FINANCIAL CORP is rather high; currently it is at 61.84%. Regardless of TAXI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TAXI's net profit margin of 67.79% significantly outperformed against the industry.
  • MEDALLION FINANCIAL CORP has improved earnings per share by 11.1% 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, MEDALLION FINANCIAL CORP reported lower earnings of $1.14 versus $1.16 in the prior year. This year, the market expects an improvement in earnings ($1.23 versus $1.14).
  • 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 28.26%, 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 significantly decreased to $0.38 million or 97.99% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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Western Asset Mortgage Capital

Dividend Yield: 20.00%

Western Asset Mortgage Capital (NYSE: WMC) shares currently have a dividend yield of 20.00%.

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 21.39.

The average volume for Western Asset Mortgage Capital has been 494,000 shares per day over the past 30 days. Western Asset Mortgage Capital has a market cap of $502.2 million and is part of the real estate industry. Shares are down 19.9% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Western Asset Mortgage Capital as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 6.1%. Since the same quarter one year prior, revenues rose by 37.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • 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 ($2.65 versus $2.36).
  • 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 107.1% when compared to the same quarter one year ago, falling from $26.14 million to -$1.85 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, WESTERN ASSET MTG CAPITAL CP's return on equity is below that of both the industry average and the S&P 500.

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Whitestone REIT

Dividend Yield: 9.20%

Whitestone REIT (NYSE: WSR) shares currently have a dividend yield of 9.20%.

WhiteStone REIT is a Maryland REIT engaged in owning and operating commercial properties in culturally diverse markets in major metropolitan areas. The company has a P/E ratio of 61.65.

The average volume for Whitestone REIT has been 145,300 shares per day over the past 30 days. Whitestone REIT has a market cap of $332.7 million and is part of the real estate industry. Shares are down 19.7% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Whitestone REIT as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and disappointing return on equity.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 6.1%. Since the same quarter one year prior, revenues rose by 32.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 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 42.3% when compared to the same quarter one year prior, rising from $1.10 million to $1.57 million.
  • 45.50% is the gross profit margin for WHITESTONE REIT which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, WSR's net profit margin of 6.36% significantly trails the industry average.
  • WSR has underperformed the S&P 500 Index, declining 18.63% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
  • 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, WHITESTONE REIT's return on equity significantly trails that of both the industry average and the S&P 500.

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