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 4 stocks with substantial yields, that ultimately, we have rated "Hold." Preferred Apartment Communities (AMEX: APTS) shares currently have a dividend yield of 7.40%. Preferred Apartment Communities, Inc. is a real estate investment trust launched and managed by Preferred Apartment Advisors, LLC. The fund invests in real estate markets of the United States. It primarily acquires and operates multifamily apartment properties. The average volume for Preferred Apartment Communities has been 22,900 shares per day over the past 30 days. Preferred Apartment Communities has a market cap of $90.1 million and is part of the real estate industry. Shares are up 4.7% year to date as of the close of trading on Thursday. TheStreet Ratings rates Preferred Apartment Communities as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- APTS's very impressive revenue growth greatly exceeded the industry average of 10.8%. Since the same quarter one year prior, revenues leaped by 168.1%. 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.
- Net operating cash flow has significantly increased by 185.51% to $2.48 million when compared to the same quarter last year. In addition, PREFERRED APARTMENT CMNTYS has also vastly surpassed the industry average cash flow growth rate of 5.47%.
- The gross profit margin for PREFERRED APARTMENT CMNTYS is rather high; currently it is at 55.86%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -33.72% is in-line with the industry average.
- 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 1005.1% when compared to the same quarter one year ago, falling from -$0.23 million to -$2.59 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, PREFERRED APARTMENT CMNTYS's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Preferred Apartment Communities Ratings Report.
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