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 and 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 5 stocks with substantial yields, that ultimately, we have rated "Hold." Corporate Office Properties (NYSE: OFC) shares currently have a dividend yield of 4.20%. Owns, manages, leases, acquires and develops suburban office properties located in the Greater Washington DC and other markets. At Dec. 31, 2005, this self-managed real estate investment trust owned 165 operating office properties with 13.7 million rentable square feet and several land parcels. The average volume for Corporate Office Properties has been 609,000 shares per day over the past 30 days. Corporate Office Properties has a market cap of $2.3 billion and is part of the real estate industry. Shares are up 5.8% year to date as of the close of trading on Monday. TheStreet Ratings rates Corporate Office Properties as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, good cash flow from operations and increase in stock price during the past year. However, as a counter to these strengths, we find that the company's profit margins have been poor overall. 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 45.9% when compared to the same quarter one year prior, rising from $10.30 million to $15.02 million.
- Net operating cash flow has slightly increased to $47.31 million or 8.04% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -16.35%.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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.
- 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, CORP OFFICE PPTYS TR INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for CORP OFFICE PPTYS TR INC is currently lower than what is desirable, coming in at 27.80%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 11.38% significantly trails the industry average.
- You can view the full Corporate Office Properties Ratings Report.
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