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." CommonWealth REIT (NYSE: CWH) shares currently have a dividend yield of 4.40%. CommonWealth REIT is a real estate investment trust launched and managed by Reit Management & Research LLC. The fund invests in the real estate markets of the United States. It seeks to invest in office buildings, industrial buildings, and leased industrial land. The company has a P/E ratio of 54.98. The average volume for CommonWealth REIT has been 839,900 shares per day over the past 30 days. CommonWealth REIT has a market cap of $2.7 billion and is part of the real estate industry. Shares are up 42.3% year to date as of the close of trading on Thursday. TheStreet Ratings rates CommonWealth REIT as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including poor profit margins and weak operating cash flow. Highlights from the ratings report include:
- Powered by its strong earnings growth of 50.00% and other important driving factors, this stock has surged by 55.44% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.8%. Since the same quarter one year prior, revenues slightly increased by 8.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- COMMONWEALTH REIT reported significant earnings per share improvement 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 year. During the past fiscal year, COMMONWEALTH REIT increased its bottom line by earning $0.34 versus $0.19 in the prior year.
- The gross profit margin for COMMONWEALTH REIT is currently lower than what is desirable, coming in at 33.58%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 6.86% significantly trails the industry average.
- Net operating cash flow has declined marginally to $93.87 million or 9.35% 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.
- You can view the full CommonWealth REIT Ratings Report.
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