3 Hold-Rated Dividend Stocks: AI, PHI, GAIN

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."

Arlington Asset Investment

Dividend Yield: 19.90%

Arlington Asset Investment (NYSE: AI) shares currently have a dividend yield of 19.90%.

Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets. The company has a P/E ratio of 3.61.

The average volume for Arlington Asset Investment has been 250,100 shares per day over the past 30 days. Arlington Asset Investment has a market cap of $288.4 million and is part of the real estate industry. Shares are down 2.2% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Arlington Asset Investment as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 24.3%. Since the same quarter one year prior, revenues slightly increased by 5.2%. Growth in the company's revenue appears to have helped boost 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 Capital Markets industry. The net income increased by 25.0% when compared to the same quarter one year prior, rising from -$42.19 million to -$31.62 million.
  • ARLINGTON ASSET INVESTMENT has improved earnings per share by 25.0% 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, ARLINGTON ASSET INVESTMENT swung to a loss, reporting -$3.02 versus $0.61 in the prior year. This year, the market expects an improvement in earnings ($3.15 versus -$3.02).
  • AI'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 42.72%, 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.
  • 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. Compared to other companies in the Capital Markets industry and the overall market, ARLINGTON ASSET INVESTMENT's return on equity significantly trails that of both the industry average and the S&P 500.

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Philippine Long Distance Telephone

Dividend Yield: 7.10%

Philippine Long Distance Telephone (NYSE: PHI) shares currently have a dividend yield of 7.10%.

Philippine Long Distance Telephone Company provides telecommunications services in the Philippines. The company operates in three segments: Wireless, Fixed Line, and Others. The company has a P/E ratio of 9.98.

The average volume for Philippine Long Distance Telephone has been 126,700 shares per day over the past 30 days. Philippine Long Distance Telephone has a market cap of $7.5 billion and is part of the telecommunications industry. Shares are down 17.8% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Philippine Long Distance Telephone as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and generally higher debt management risk.

Highlights from the ratings report include:
  • Net operating cash flow has slightly increased to $467.63 million or 5.88% when compared to the same quarter last year. Despite an increase in cash flow of 5.88%, PLDT-PHILIPPINE LNG DIST TEL is still growing at a significantly lower rate than the industry average of 97.25%.
  • 40.17% is the gross profit margin for PLDT-PHILIPPINE LNG DIST TEL which we consider to be strong. Regardless of PHI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PHI's net profit margin of -7.64% significantly underperformed when compared to the industry average.
  • The debt-to-equity ratio of 1.42 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.46, which clearly demonstrates the inability to cover short-term cash needs.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 44.05%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 150.76% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.

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Gladstone Investment

Dividend Yield: 10.80%

Gladstone Investment (NASDAQ: GAIN) shares currently have a dividend yield of 10.80%.

Gladstone Investment Corporation is a business development company specializing in buyouts; recapitalizations; refinancing existing debt; senior debt securities; junior subordinated debt securities; limited liability company interests, and warrants or options. The company has a P/E ratio of 49.50.

The average volume for Gladstone Investment has been 139,000 shares per day over the past 30 days. Gladstone Investment has a market cap of $209.8 million and is part of the financial services industry. Shares are down 9.7% year-to-date as of the close of trading on Tuesday.

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

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 24.3%. Since the same quarter one year prior, revenues slightly increased by 4.4%. 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.
  • 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, GLADSTONE INVESTMENT CORP/DE's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for GLADSTONE INVESTMENT CORP/DE is rather high; currently it is at 67.58%. Regardless of GAIN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GAIN's net profit margin of -51.48% significantly underperformed when compared to the industry average.
  • The share price of GLADSTONE INVESTMENT CORP/DE has not done very well: it is down 9.95% 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, 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 Capital Markets industry. The net income has significantly decreased by 181.9% when compared to the same quarter one year ago, falling from $7.59 million to -$6.21 million.

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