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: 13.90% Ellington Residential Mortgage REIT (NYSE: EARN) shares currently have a dividend yield of 13.90%. Ellington Residential Mortgage REIT, a real estate investment trust, specializes in acquiring, investing in, and managing residential mortgage-and real estate-related assets. The average volume for Ellington Residential Mortgage REIT has been 41,100 shares per day over the past 30 days. Ellington Residential Mortgage REIT has a market cap of $118.6 million and is part of the real estate industry. Shares are down 21.7% 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 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, weak operating cash flow 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 236.3% when compared to the same quarter one year ago, falling from $3.53 million to -$4.82 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, ELLINGTON RESIDENTIAL MTG's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$3.89 million or 428.37% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 26.44%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 235.89% 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.
- EARN, with its decline in revenue, slightly underperformed the industry average of 6.1%. Since the same quarter one year prior, revenues slightly dropped by 1.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full Ellington Residential Mortgage REIT Ratings Report.
- Currently the debt-to-equity ratio of 1.98 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Even though the debt-to-equity ratio is weak, USDP's quick ratio is somewhat strong at 1.38, demonstrating the ability to handle short-term liquidity needs.
- USDP'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 38.55%, 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.
- USD PARTNERS LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($0.86 versus -$0.12).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 564.4% when compared to the same quarter one year prior, rising from -$1.36 million to $6.33 million.
- The gross profit margin for USD PARTNERS LP is rather high; currently it is at 54.01%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 29.01% significantly outperformed against the industry average.
- You can view the full USD Partners Ratings Report.
- The debt-to-equity ratio is very high at 3.16 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, BDMS has a quick ratio of 0.52, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- 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 Health Care Providers & Services industry and the overall market, BIRNER DENTAL MGMT SVCS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for BIRNER DENTAL MGMT SVCS INC is rather low; currently it is at 21.95%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -0.34% trails that of the industry average.
- Net operating cash flow has decreased to $1.72 million or 32.68% 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.
- BIRNER DENTAL MGMT SVCS INC reported flat earnings per share in the most recent quarter. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, BIRNER DENTAL MGMT SVCS INC swung to a loss, reporting -$0.49 versus $0.05 in the prior year.
- You can view the full Birner Dental Management Services Ratings Report.
- Our dividend calendar.