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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 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."

Redwood

Dividend Yield: 9.00%

Redwood

(NYSE:

RWT

) shares currently have a dividend yield of 9.00%.

Redwood Trust, Inc., together with its subsidiaries, focuses on investing in mortgage- and other real estate-related assets; and engaging in residential and commercial mortgage banking activities in the United States. The company has a P/E ratio of 10.50.

The average volume for Redwood has been 829,200 shares per day over the past 30 days. Redwood has a market cap of $964.1 million and is part of the real estate industry. Shares are down 7% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Redwood

as a

hold

. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income and revenue growth. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year.

Highlights from the ratings report include:

  • REDWOOD TRUST INC has improved earnings per share by 48.4% 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, REDWOOD TRUST INC increased its bottom line by earning $1.15 versus $1.13 in the prior year. This year, the market expects an improvement in earnings ($1.33 versus $1.15).
  • 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 51.2% when compared to the same quarter one year prior, rising from $27.12 million to $41.00 million.
  • 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, REDWOOD TRUST INC's return on equity is below that of both the industry average and the S&P 500.
  • RWT'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 31.89%, 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.

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Targa Resources

Dividend Yield: 12.40%

Targa Resources

(NYSE:

TRGP

) shares currently have a dividend yield of 12.40%.

Targa Resources Corp., through its general and limited partner interests in Targa Resources Partners LP, provides midstream natural gas and natural gas liquid (NGL) services in the United States. The company operates in two divisions, Gathering and Processing, and Logistics and Marketing. The company has a P/E ratio of 27.73.

The average volume for Targa Resources has been 4,299,500 shares per day over the past 30 days. Targa Resources has a market cap of $4.7 billion and is part of the energy industry. Shares are up 10.4% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Targa Resources

as a

hold

. The company's strengths can be seen in multiple areas, such as its increase in net income, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, generally higher debt management risk and disappointing return on equity.

Highlights from the ratings report include:

  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Oil, Gas & Consumable Fuels industry average. The net income increased by 5.5% when compared to the same quarter one year prior, going from $25.50 million to $26.90 million.
  • Despite the weak revenue results, TRGP has outperformed against the industry average of 34.6%. Since the same quarter one year prior, revenues fell by 18.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • TARGA RESOURCES CORP's earnings per share declined by 21.3% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, TARGA RESOURCES CORP reported lower earnings of $1.05 versus $2.44 in the prior year. For the next year, the market is expecting a contraction of 146.2% in earnings (-$0.49 versus $1.05).
  • The debt-to-equity ratio is very high at 3.94 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, TRGP maintains a poor quick ratio of 0.74, which illustrates the inability to avoid short-term cash problems.

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Royal Dutch Shell

Dividend Yield: 7.60%

Royal Dutch Shell

(NYSE:

RDS.B

) shares currently have a dividend yield of 7.60%.

Royal Dutch Shell plc operates as an independent oil and gas company worldwide. It operates through Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas, and natural gas liquids. The company has a P/E ratio of 6.42.

The average volume for Royal Dutch Shell has been 3,534,500 shares per day over the past 30 days. Royal Dutch Shell has a market cap of $158.7 billion and is part of the energy industry. Shares are up 6.2% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Royal Dutch Shell

as a

hold

. The company's strengths can be seen in multiple areas, such as its increase in net income, largely solid financial position with reasonable debt levels by most measures and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, weak operating cash flow and disappointing return on equity.

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 Oil, Gas & Consumable Fuels industry. The net income increased by 57.8% when compared to the same quarter one year prior, rising from $595.00 million to $939.00 million.
  • The current debt-to-equity ratio, 0.36, is low and is below the industry average, implying that there has been successful management of debt levels.
  • ROYAL DUTCH SHELL PLC 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, ROYAL DUTCH SHELL PLC reported lower earnings of $0.60 versus $4.70 in the prior year. This year, the market expects an improvement in earnings ($4.91 versus $0.60).
  • Net operating cash flow has decreased to $5,423.00 million or 43.55% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, ROYAL DUTCH SHELL PLC has marginally lower results.
  • RDS.B has underperformed the S&P 500 Index, declining 17.52% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.

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