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."CYS Investments Dividend Yield: 11.50% CYS Investments (NYSE: CYS) shares currently have a dividend yield of 11.50%. CYS Investments, Inc., a specialty finance company, makes leveraged investments in whole-pool residential mortgage pass-through securities where the principal and interest payments are guaranteed. The average volume for CYS Investments has been 1,473,000 shares per day over the past 30 days. CYS Investments has a market cap of $1.3 billion and is part of the real estate industry. Shares are up 22.4% 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 CYS Investments as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- 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 Real Estate Investment Trusts (REITs) industry and the overall market, CYS INVESTMENTS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $36.15 million or 32.91% 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.
- CYS INVESTMENTS INC has improved earnings per share by 19.4% 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, CYS INVESTMENTS INC swung to a loss, reporting -$0.17 versus $2.51 in the prior year. This year, the market expects an improvement in earnings ($1.04 versus -$0.17).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 12.3% when compared to the same quarter one year prior, going from $54.60 million to $61.33 million.
- The gross profit margin for CYS INVESTMENTS INC is currently very high, coming in at 92.24%. Regardless of CYS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CYS's net profit margin of 74.87% significantly outperformed against the industry.
- You can view the full CYS Investments Ratings Report.
- 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 significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. 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 14.27% 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 debt-to-equity ratio is very high at 5.74 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, PAGP has a quick ratio of 0.52, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- PAGP'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 57.61%, which is also worse than the performance of the S&P 500 Index. 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 $631.00 million or 13.44% when compared to the same quarter last year. Despite a decrease in cash flow PLAINS GP HOLDINGS LP is still fairing well by exceeding its industry average cash flow growth rate of -49.64%.
- The gross profit margin for PLAINS GP HOLDINGS LP is currently extremely low, coming in at 11.26%. Regardless of PAGP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.87% trails the industry average.
- PAGP, with its decline in revenue, slightly underperformed the industry average of 23.9%. Since the same quarter one year prior, revenues fell by 30.8%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.
- You can view the full Plains GP Holdings Ratings Report.
- Our dividend calendar.