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 "Hold." Washington REIT (NYSE: WRE) shares currently have a dividend yield of 4.20%. Washington Real Estate Investment Trust is an equity real estate investment trust (REIT). The company engages in the ownership, operation, and development of real properties. The firm invests in real estate markets of the greater Washington D.C. metro region. The company has a P/E ratio of 119.00. The average volume for Washington REIT has been 510,700 shares per day over the past 30 days. Washington REIT has a market cap of $1.9 billion and is part of the real estate industry. Shares are up 8.3% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Washington REIT as a hold. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and poor profit margins. Highlights from the ratings report include:
- WASHINGTON REIT 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. During the past fiscal year, WASHINGTON REIT turned its bottom line around by earning $0.27 versus -$0.06 in the prior year.
- WRE's revenue growth trails the industry average of 16.4%. Since the same quarter one year prior, revenues slightly increased by 2.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has increased to $38.34 million or 21.83% when compared to the same quarter last year. Despite an increase in cash flow, WASHINGTON REIT's cash flow growth rate is still lower than the industry average growth rate of 36.21%.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 90.3% when compared to the same quarter one year ago, falling from $30.38 million to $2.94 million.
- In its most recent trading session, WRE has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
- You can view the full Washington REIT Ratings Report.