3 Hold-Rated Dividend Stocks: PMT, PKY, VER

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."

PennyMac Mortgage Investment

Dividend Yield: 11.80%

PennyMac Mortgage Investment (NYSE: PMT) shares currently have a dividend yield of 11.80%.

PennyMac Mortgage Investment Trust, a specialty finance company, invests primarily in residential mortgage loans and mortgage-related assets in the United States. The company operates in two segments, Correspondent Production and Investment Activities. The company has a P/E ratio of 12.28.

The average volume for PennyMac Mortgage Investment has been 625,600 shares per day over the past 30 days. PennyMac Mortgage Investment has a market cap of $1.1 billion and is part of the real estate industry. Shares are up 4.7% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates PennyMac Mortgage Investment as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels 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 11.9%. Since the same quarter one year prior, revenues rose by 32.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • PENNYMAC MORTGAGE INVEST TR reported significant earnings per share improvement 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, PENNYMAC MORTGAGE INVEST TR reported lower earnings of $1.15 versus $2.46 in the prior year. This year, the market expects an improvement in earnings ($1.50 versus $1.15).
  • PMT has underperformed the S&P 500 Index, declining 10.66% 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.
  • 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, PENNYMAC MORTGAGE INVEST TR's return on equity is below that of both the industry average and the S&P 500.

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Parkway Properties

Dividend Yield: 4.30%

Parkway Properties (NYSE: PKY) shares currently have a dividend yield of 4.30%.

Parkway Properties, Inc., a real estate investment trust (REIT), engages in the operation, acquisition, ownership, management, and leasing of office properties. It operates and invests principally in office properties in the southeastern and southwestern United States and Chicago. The company has a P/E ratio of 16.03.

The average volume for Parkway Properties has been 988,800 shares per day over the past 30 days. Parkway Properties has a market cap of $2.0 billion and is part of the real estate industry. Shares are up 12.3% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates Parkway Properties as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • 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 743.9% when compared to the same quarter one year prior, rising from $7.28 million to $61.39 million.
  • The gross profit margin for PARKWAY PROPERTIES INC is rather low; currently it is at 23.32%. Regardless of PKY's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, PKY's net profit margin of 55.03% significantly outperformed against the industry.
  • PKY has underperformed the S&P 500 Index, declining 11.72% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • Net operating cash flow has decreased to $6.45 million or 30.36% 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.

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VEREIT

Dividend Yield: 5.30%

VEREIT (NYSE: VER) shares currently have a dividend yield of 5.30%.

VEREIT, Inc. is a publicly owned real estate investment trust. It owns and acquires single tenant, freestanding commercial real estate that is net leased on a medium-term basis, primarily to investment grade credit rated and other creditworthy tenants.

The average volume for VEREIT has been 6,401,000 shares per day over the past 30 days. VEREIT has a market cap of $9.4 billion and is part of the real estate industry. Shares are up 31.2% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates VEREIT as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and weak operating cash flow.

Highlights from the ratings report include:
  • 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, despite the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • VEREIT 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. 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, VEREIT INC continued to lose money by earning -$0.43 versus -$1.44 in the prior year. This year, the market expects an improvement in earnings (-$0.16 versus -$0.43).
  • VER, with its decline in revenue, underperformed when compared the industry average of 11.9%. Since the same quarter one year prior, revenues slightly dropped by 3.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • Net operating cash flow has decreased to $178.61 million or 22.38% 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.
  • 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 277.3% when compared to the same quarter one year ago, falling from -$29.97 million to -$113.09 million.

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