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."Seaspan Dividend Yield: 7.70% Seaspan (NYSE: SSW) shares currently have a dividend yield of 7.70%. Seaspan Corporation operates as an independent charter owner and manager of containerships in Hong Kong. The company charters its containerships pursuant to long-term, fixed-rate time charters to various container liner companies. The company has a P/E ratio of 13.42. The average volume for Seaspan has been 318,200 shares per day over the past 30 days. Seaspan has a market cap of $1.9 billion and is part of the transportation industry. Shares are up 17.8% year-to-date as of the close of trading on Friday. 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 Seaspan as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and generally higher debt management risk. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 17.7%. Since the same quarter one year prior, revenues rose by 15.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- The gross profit margin for SEASPAN CORP is rather high; currently it is at 68.75%. Regardless of SSW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SSW's net profit margin of 34.88% significantly outperformed against the industry.
- The debt-to-equity ratio is very high at 2.10 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, SSW's quick ratio is somewhat strong at 1.18, demonstrating the ability to handle short-term liquidity needs.
- Net operating cash flow has declined marginally to $96.64 million or 2.00% 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.
- You can view the full Seaspan Ratings Report.
- The gross profit margin for ALLIANCEBERNSTEIN HOLDING LP is currently very high, coming in at 100.00%. AB has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, AB's net profit margin of 89.90% significantly outperformed against the industry.
- 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 Capital Markets industry and the overall market on the basis of return on equity, ALLIANCEBERNSTEIN HOLDING LP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- AB, with its decline in revenue, slightly underperformed the industry average of 4.3%. Since the same quarter one year prior, revenues slightly dropped by 9.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, AB has underperformed the S&P 500 Index, declining 20.90% 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.
- Net operating cash flow has declined marginally to $43.00 million or 0.55% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full AllianceBernstein Ratings Report.
- The gross profit margin for ELLINGTON FINANCIAL LLC is rather high; currently it is at 69.28%. Regardless of EFC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.40% trails the industry average.
- EFC, with its decline in revenue, underperformed when compared the industry average of 4.3%. Since the same quarter one year prior, revenues fell by 16.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- ELLINGTON FINANCIAL LLC's earnings per share declined by 37.5% in the most recent quarter compared to the same quarter a year ago. 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, ELLINGTON FINANCIAL LLC reported lower earnings of $1.13 versus $2.23 in the prior year. This year, the market expects an improvement in earnings ($2.21 versus $1.13).
- The share price of ELLINGTON FINANCIAL LLC has not done very well: it is down 11.09% 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.
- 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. When compared to other companies in the Capital Markets industry and the overall market, ELLINGTON FINANCIAL LLC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Ellington Financial Ratings Report.
- Our dividend calendar.