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 25.15. The average volume for Government Properties Income has been 834,400 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 10.2% 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 robust revenue growth, reasonable valuation levels, expanding profit margins, good cash flow from operations and compelling growth in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- GOV's revenue growth has slightly outpaced the industry average of 12.0%. Since the same quarter one year prior, revenues rose by 15.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- 35.90% is the gross profit margin for GOVERNMENT PPTYS INCOME TR which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 42.80% significantly outperformed against the industry average.
- Net operating cash flow has slightly increased to $29.65 million or 1.15% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -20.78%.
- 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 89.3% when compared to the same quarter one year prior, rising from $13.06 million to $24.73 million.
- You can view the full Government Properties Income Ratings Report.