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." HCP (NYSE: HCP) shares currently have a dividend yield of 4.10%. HCP, Inc. is an independent hybrid real estate investment trust. The fund invests in real estate markets of the United States. The company has a P/E ratio of 28.12. The average volume for HCP has been 2,191,000 shares per day over the past 30 days. HCP has a market cap of $23.4 billion and is part of the real estate industry. Shares are up 15.2% year to date as of the close of trading on Friday. TheStreet Ratings rates HCP as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and good cash flow from operations. 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:
- Powered by its strong earnings growth of 235.71% and other important driving factors, this stock has surged by 31.08% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, HCP should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- HCP INC 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 two years. We feel that this trend should continue. During the past fiscal year, HCP INC increased its bottom line by earning $1.83 versus $1.27 in the prior year. This year, the market expects an improvement in earnings ($2.00 versus $1.83).
- 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 255.3% when compared to the same quarter one year prior, rising from $67.84 million to $241.03 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 10.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has significantly increased by 128.73% to $313.92 million when compared to the same quarter last year. In addition, HCP INC has also vastly surpassed the industry average cash flow growth rate of 38.81%.
- You can view the full HCP Ratings Report.