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: 18.50% Arlington Asset Investment (NYSE: AI) shares currently have a dividend yield of 18.50%. Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets. The company has a P/E ratio of 3.89. The average volume for Arlington Asset Investment has been 254,900 shares per day over the past 30 days. Arlington Asset Investment has a market cap of $311.3 million and is part of the real estate industry. Shares are up 3% 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 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 24.5%. 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 ($3.13 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 38.05%, 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.
- You can view the full Arlington Asset Investment Ratings Report.
- The revenue growth came in higher than the industry average of 11.9%. Since the same quarter one year prior, revenues rose by 28.3%. 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 165.1% when compared to the same quarter one year prior, rising from $0.72 million to $1.91 million.
- Net operating cash flow has slightly increased to $7.66 million or 5.71% when compared to the same quarter last year. Despite an increase in cash flow, UMH PROPERTIES INC's average is still marginally south of the industry average growth rate of 11.95%.
- The gross profit margin for UMH PROPERTIES INC is currently lower than what is desirable, coming in at 32.30%. Regardless of UMH's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, UMH's net profit margin of 7.41% is significantly lower than the industry average.
- 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, UMH PROPERTIES INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full UMH Properties Ratings Report.
- The gross profit margin for GARRISON CAPITAL INC is currently very high, coming in at 76.02%. 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 -89.43% is in-line with the industry average.
- Despite the weak revenue results, GARS has outperformed against the industry average of 24.5%. Since the same quarter one year prior, revenues fell by 14.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- GARRISON CAPITAL INC 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. 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, GARRISON CAPITAL INC swung to a loss, reporting -$0.22 versus $1.82 in the prior year. This year, the market expects an improvement in earnings ($1.45 versus -$0.22).
- 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 281.1% when compared to the same quarter one year ago, falling from $5.67 million to -$10.27 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 Capital Markets industry and the overall market, GARRISON CAPITAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Garrison Capital Ratings Report.
- Our dividend calendar.