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." CommonWealth REIT (NYSE: CWH) shares currently have a dividend yield of 4.80%. CommonWealth REIT is a real estate investment trust launched and managed by Reit Management & Research LLC. The fund invests in the real estate markets of the United States. It seeks to invest in office buildings, industrial buildings, and leased industrial land. The company has a P/E ratio of 60.11. The average volume for CommonWealth REIT has been 4,084,300 shares per day over the past 30 days. CommonWealth REIT has a market cap of $2.5 billion and is part of the real estate industry. Shares are up 36.6% year to date as of the close of trading on Monday. TheStreet Ratings rates CommonWealth REIT as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income and poor profit margins. Highlights from the ratings report include:
- This stock has managed to rise its share value by 16.54% over the past twelve months. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- COMMONWEALTH REIT has shown improvement in its earnings for its most recently reported quarter when compared with the same quarter a year earlier. The company has demonstrated a pattern of positive earnings per share growth over the past two years. During the past fiscal year, COMMONWEALTH REIT increased its bottom line by earning $0.36 versus $0.19 in the prior year.
- The gross profit margin for COMMONWEALTH REIT is currently lower than what is desirable, coming in at 33.30%. Regardless of CWH's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, CWH's net profit margin of -57.04% significantly underperformed when compared to the industry average.
- 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 1127.3% when compared to the same quarter one year ago, falling from $14.87 million to -$152.78 million.
- You can view the full CommonWealth REIT Ratings Report.
- ARR's very impressive revenue growth greatly exceeded the industry average of 10.1%. Since the same quarter one year prior, revenues leaped by 215.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, ARMOUR RESIDENTIAL REIT INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- ARMOUR RESIDENTIAL REIT INC has improved earnings per share by 37.0% 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, ARMOUR RESIDENTIAL REIT INC increased its bottom line by earning $0.97 versus $0.02 in the prior year. For the next year, the market is expecting a contraction of 8.2% in earnings ($0.89 versus $0.97).
- ARR has underperformed the S&P 500 Index, declining 7.44% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- You can view the full ARMOUR Residential REIT Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.1%. Since the same quarter one year prior, revenues rose by 10.0%. 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.
- The gross profit margin for HATTERAS FINANCIAL CORP is currently very high, coming in at 94.70%. Regardless of HTS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HTS's net profit margin of 52.86% significantly outperformed against the industry.
- The share price of HATTERAS FINANCIAL CORP has not done very well: it is down 6.93% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- HATTERAS FINANCIAL CORP's earnings per share declined by 30.3% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, HATTERAS FINANCIAL CORP reported lower earnings of $3.65 versus $3.96 in the prior year. For the next year, the market is expecting a contraction of 27.4% in earnings ($2.65 versus $3.65).
- You can view the full Hatteras Financial Corporation Ratings Report.
- Our dividend calendar.