Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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 3 stocks with substantial yields, that ultimately, we have rated "Sell."Preferred Apartment Communities (AMEX:APTS) shares currently have a dividend yield of 7.90%. 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 57,900 shares per day over the past 30 days. Preferred Apartment Communities has a market cap of $121.3 million and is part of the real estate industry. Shares are up 1.1% year-to-date as of the close of trading on Tuesday.TheStreet Ratings rates Preferred Apartment Communities as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and feeble growth in its earnings per share.Highlights from the ratings report include:
- 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 34.2% when compared to the same quarter one year ago, falling from $0.15 million to $0.10 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. 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.
- PREFERRED APARTMENT CMNTYS's earnings have gone downhill when comparing its most recently reported quarter with the same quarter a year earlier. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, PREFERRED APARTMENT CMNTYS continued to lose money by earning -$0.11 versus -$1.67 in the prior year. For the next year, the market is expecting a contraction of 1872.7% in earnings (-$2.17 versus -$0.11).
- This stock's share value has moved by only 7.91% over the past year. 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.
- The gross profit margin for PREFERRED APARTMENT CMNTYS is rather high; currently it is at 61.13%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, APTS's net profit margin of 1.11% significantly trails the industry average.
- You can view the full Preferred Apartment Communities Ratings Report.
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