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: 18.20% Arlington Asset Investment (NYSE: AI) shares currently have a dividend yield of 18.20%. Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets. The company has a P/E ratio of 3.66. The average volume for Arlington Asset Investment has been 254,100 shares per day over the past 30 days. Arlington Asset Investment has a market cap of $315.9 million and is part of the real estate industry. Shares are up 5.3% year-to-date as of the close of trading on Friday. 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 increase in net income, expanding profit margins and growth in earnings per share. 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 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 95.3% when compared to the same quarter one year prior, rising from $6.60 million to $12.89 million.
- The gross profit margin for ARLINGTON ASSET INVESTMENT is currently very high, coming in at 76.49%. Regardless of AI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AI's net profit margin of 74.08% significantly outperformed against the industry.
- ARLINGTON ASSET INVESTMENT 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, 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 ($2.87 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 28.09%, 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.
- 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 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.
- MTR has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 25.79, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for MESA ROYALTY TRUST is currently very high, coming in at 100.00%. MTR has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, MTR's net profit margin of 76.09% significantly outperformed against the industry.
- MTR, with its very weak revenue results, has greatly underperformed against the industry average of 24.1%. Since the same quarter one year prior, revenues plummeted by 74.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The share price of MESA ROYALTY TRUST has not done very well: it is down 23.57% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.
- MESA ROYALTY TRUST 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. During the past fiscal year, MESA ROYALTY TRUST reported lower earnings of $1.03 versus $3.50 in the prior year.
- You can view the full Mesa Royalty Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.4%. Since the same quarter one year prior, revenues slightly increased by 7.4%. 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 exceeded that of the Real Estate Investment Trusts (REITs) industry average, but is less than that of the S&P 500. The net income increased by 2.3% when compared to the same quarter one year prior, going from $10.75 million to $11.00 million.
- INVESTORS REAL ESTATE TRUST has improved earnings per share by 20.0% 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, INVESTORS REAL ESTATE TRUST increased its bottom line by earning $0.08 versus $0.04 in the prior year. For the next year, the market is expecting a contraction of 87.5% in earnings ($0.01 versus $0.08).
- The gross profit margin for INVESTORS REAL ESTATE TRUST is currently lower than what is desirable, coming in at 26.13%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 22.41% trails that of the industry average.
- IRET has underperformed the S&P 500 Index, declining 6.62% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- You can view the full Investors Real Estate Ratings Report.
- Our dividend calendar.