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." Government Properties Income (NYSE: GOV) shares currently have a dividend yield of 6.50%. Government Properties Income Trust operates as a real estate investment trust (REIT) in the United States. It primarily owns and leases office buildings that are leased mainly to government tenants. The company has a P/E ratio of 25.53. The average volume for Government Properties Income has been 862,000 shares per day over the past 30 days. Government Properties Income has a market cap of $1.4 billion and is part of the real estate industry. Shares are up 6.9% year to date as of the close of trading on Monday. TheStreet Ratings rates Government Properties Income as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 16.5%. Since the same quarter one year prior, revenues slightly increased by 8.8%. 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.
- Net operating cash flow has increased to $17.85 million or 47.12% when compared to the same quarter last year. In addition, GOVERNMENT PPTYS INCOME TR has also modestly surpassed the industry average cash flow growth rate of 38.55%.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- GOVERNMENT PPTYS INCOME TR's earnings per share declined by 10.7% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, GOVERNMENT PPTYS INCOME TR reported lower earnings of $1.03 versus $1.06 in the prior year. This year, the market expects an improvement in earnings ($1.07 versus $1.03).
- You can view the full Government Properties Income Ratings Report.