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 "Buy." Starwood Property (NYSE: STWD) shares currently have a dividend yield of 6.20%. Starwood Property Trust, Inc. engages in originating, investing in, financing, and managing commercial mortgage loans, other commercial real estate debt investments, commercial mortgage-backed securities, and other commercial real estate-related debt investments. The company has a P/E ratio of 16.20. Currently there are 4 analysts that rate Starwood Property a buy, no analysts rate it a sell, and 1 rates it a hold. The average volume for Starwood Property has been 1,276,000 shares per day over the past 30 days. Starwood Property has a market cap of $3.9 billion and is part of the real estate industry. Shares are up 23.1% year to date as of the close of trading on Monday. TheStreet Ratings rates Starwood Property as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, compelling growth in net income, good cash flow from operations and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 47.8%. 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.
- Compared to its closing price of one year ago, STWD's share price has jumped by 35.90%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, STWD should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- 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 37.3% when compared to the same quarter one year prior, rising from $41.03 million to $56.33 million.
- Net operating cash flow has significantly increased by 308.55% to $34.13 million when compared to the same quarter last year. In addition, STARWOOD PROPERTY TRUST INC has also vastly surpassed the industry average cash flow growth rate of 32.95%.
- STARWOOD PROPERTY TRUST INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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, STARWOOD PROPERTY TRUST INC increased its bottom line by earning $1.78 versus $1.41 in the prior year. This year, the market expects an improvement in earnings ($1.95 versus $1.78).
- You can view the full Starwood Property Ratings Report.