3 Hold-Rated Dividend Stocks: CTL, MFA, PEGI

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."

CenturyLink

Dividend Yield: 7.00%

CenturyLink (NYSE: CTL) shares currently have a dividend yield of 7.00%.

CenturyLink, Inc. provides various communications services to residential, business, wholesale, and governmental customers in the United States. It operates through two segments, Business and Consumer. The company has a P/E ratio of 18.40.

The average volume for CenturyLink has been 5,411,700 shares per day over the past 30 days. CenturyLink has a market cap of $16.9 billion and is part of the telecommunications industry. Shares are up 21.2% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates CenturyLink as a hold. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.

Highlights from the ratings report include:
  • CENTURYLINK INC has improved earnings per share by 29.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, CENTURYLINK INC increased its bottom line by earning $1.59 versus $1.35 in the prior year. This year, the market expects an improvement in earnings ($2.59 versus $1.59).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Diversified Telecommunication Services industry average. The net income increased by 22.9% when compared to the same quarter one year prior, going from $192.00 million to $236.00 million.
  • The gross profit margin for CENTURYLINK INC is rather high; currently it is at 56.87%. Regardless of CTL'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 5.36% trails the industry average.
  • 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. In comparison to the other companies in the Diversified Telecommunication Services industry and the overall market, CENTURYLINK INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • Even though the current debt-to-equity ratio is 1.43, it is still below the industry average, suggesting that this level of debt is acceptable within the Diversified Telecommunication Services industry. Despite the fact that CTL's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.60 is low and demonstrates weak liquidity.

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MFA Financial

Dividend Yield: 10.90%

MFA Financial (NYSE: MFA) shares currently have a dividend yield of 10.90%.

MFA Financial, Inc. operates as a real estate investment trust (REIT) in the United States. The company invests in residential mortgage assets, including agency and non-agency mortgage-backed securities (MBS), and residential whole loans, and credit risk transfer securities. The company has a P/E ratio of 9.21.

The average volume for MFA Financial has been 1,863,800 shares per day over the past 30 days. MFA Financial has a market cap of $2.7 billion and is part of the real estate industry. Shares are up 13.2% year-to-date as of the close of trading on Tuesday.

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

Highlights from the ratings report include:
  • MFA's revenue growth trails the industry average of 11.9%. Since the same quarter one year prior, revenues slightly increased by 0.5%. 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 gross profit margin for MFA FINANCIAL INC is currently very high, coming in at 89.61%. Regardless of MFA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MFA's net profit margin of 56.12% significantly outperformed against the industry.
  • 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 5.0% when compared to the same quarter one year ago, dropping from $82.17 million to $78.07 million.
  • Net operating cash flow has decreased to $39.00 million or 24.75% 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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Pattern Energy Group

Dividend Yield: 6.50%

Pattern Energy Group (NASDAQ: PEGI) shares currently have a dividend yield of 6.50%.

Pattern Energy Group Inc. operates as an independent power company that owns and operates power projects in the United States, Canada, and Chile. As of June 30, 2016, the company had interests in 17 wind power projects that have a total owned capacity of 2,554 MW.

The average volume for Pattern Energy Group has been 873,800 shares per day over the past 30 days. Pattern Energy Group has a market cap of $1.8 billion and is part of the utilities industry. Shares are up 13.6% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates Pattern Energy Group as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, disappointing return on equity and weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 13.9%. Since the same quarter one year prior, revenues rose by 35.1%. 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 gross profit margin for PATTERN ENERGY GROUP INC is rather high; currently it is at 63.21%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -27.00% is in-line with the industry average.
  • PATTERN ENERGY GROUP INC's earnings per share declined by 6.7% 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, PATTERN ENERGY GROUP INC continued to lose money by earning -$0.46 versus -$0.55 in the prior year. This year, the market expects an improvement in earnings (-$0.27 versus -$0.46).
  • 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 Independent Power Producers & Energy Traders industry and the overall market on the basis of return on equity, PATTERN ENERGY GROUP INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • Although PEGI's debt-to-equity ratio of 2.31 is very high, it is currently less than that of the industry average. Along with this, the company manages to maintain a quick ratio of 0.27, which clearly demonstrates the inability to cover short-term cash needs.

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