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 "Buy." Health Care REIT (NYSE: HCN) shares currently have a dividend yield of 4.30%. Health Care REIT, Inc. is an independent equity real estate investment trust. The firm engages in acquiring, planning, developing, managing, repositioning and monetizing of real estate assets. It primarily invests in the real estate markets of the United States. The company has a P/E ratio of 72.00. The average volume for Health Care REIT has been 1,814,400 shares per day over the past 30 days. Health Care REIT has a market cap of $18.4 billion and is part of the real estate industry. Shares are up 16.3% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Health Care REIT as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 29.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- HEALTH CARE REIT INC has improved earnings per share by 46.1% 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 two years. We feel that this trend should continue. During the past fiscal year, HEALTH CARE REIT INC increased its bottom line by earning $0.47 versus $0.34 in the prior year. This year, the market expects an improvement in earnings ($1.17 versus $0.47).
- 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 140.8% when compared to the same quarter one year prior, rising from $44.52 million to $107.18 million.
- Net operating cash flow has increased to $254.66 million or 49.28% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 38.81%.
- Powered by its strong earnings growth of 46.15% and other important driving factors, this stock has surged by 30.64% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- You can view the full Health Care REIT Ratings Report.