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."Capstead Mortgage Dividend Yield: 9.50% Capstead Mortgage (NYSE: CMO) shares currently have a dividend yield of 9.50%. Capstead Mortgage Corporation operates as real estate investment trust (REIT) in the United States. The company has a P/E ratio of 10.81. The average volume for Capstead Mortgage has been 875,400 shares per day over the past 30 days. Capstead Mortgage has a market cap of $933.6 million and is part of the real estate industry. Shares are up 12.4% year-to-date as of the close of trading on Monday. 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 Capstead Mortgage as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, 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:
- CAPSTEAD MORTGAGE CORP's earnings per share declined by 21.9% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, CAPSTEAD MORTGAGE CORP reported lower earnings of $0.98 versus $1.33 in the prior year. For the next year, the market is expecting a contraction of 4.1% in earnings ($0.94 versus $0.98).
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Real Estate Investment Trusts (REITs) industry average. The net income has decreased by 19.4% when compared to the same quarter one year ago, dropping from $33.96 million to $27.35 million.
- 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 Real Estate Investment Trusts (REITs) industry and the overall market, CAPSTEAD MORTGAGE CORP's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $48.79 million or 17.08% 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.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, CMO has underperformed the S&P 500 Index, declining 17.11% 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.
- You can view the full Capstead Mortgage Ratings Report.
- 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 Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 136.0% when compared to the same quarter one year ago, falling from -$39.32 million to -$92.77 million.
- Although IGT's debt-to-equity ratio of 2.50 is very high, it is currently less than that of the industry average. Along with the unfavorable debt-to-equity ratio, IGT maintains a poor quick ratio of 0.81, which illustrates the inability to avoid short-term cash problems.
- INTL GAME TECHNOLOGY PLC 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 year, the market expects an improvement in earnings ($2.06 versus -$0.37).
- Looking at where the stock is today compared to one year ago, we find that it is higher, and it has outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Regardless of the rise in share value over the previous year, we feel that the risks involved in investing in this stock do not compensate for any future upside potential.
- Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, INTL GAME TECHNOLOGY PLC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full International Game Technology Ratings Report.
- 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 Specialty Retail industry. The net income has significantly decreased by 84.2% when compared to the same quarter one year ago, falling from $10.37 million to $1.64 million.
- Net operating cash flow has declined marginally to $46.44 million or 5.20% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, TAILORED BRANDS INC has marginally lower results.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 79.29%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 85.71% 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.
- TAILORED BRANDS 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, TAILORED BRANDS INC reported poor results of -$21.23 versus -$0.02 in the prior year. This year, the market expects an improvement in earnings ($1.68 versus -$21.23).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.4%. Since the same quarter one year prior, revenues slightly dropped by 6.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full Tailored Brands Ratings Report.
- Our dividend calendar.