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 5 stocks with substantial yields, that ultimately, we have rated "Buy." Healthcare Realty (NYSE: HR) shares currently have a dividend yield of 4.20%. Healthcare Realty Trust Incorporated is an independent real estate investment trust. The firm invests in real estate markets of the United States. The company has a P/E ratio of 285.50. The average volume for Healthcare Realty has been 632,700 shares per day over the past 30 days. Healthcare Realty has a market cap of $2.6 billion and is part of the real estate industry. Shares are up 18.9% year to date as of the close of trading on Thursday. TheStreet Ratings rates Healthcare Realty as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 12.0%. Since the same quarter one year prior, revenues slightly increased by 8.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- HEALTHCARE REALTY TRUST INC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HEALTHCARE REALTY TRUST INC turned its bottom line around by earning $0.10 versus -$0.04 in the prior year. This year, the market expects an improvement in earnings ($0.23 versus $0.10).
- Compared to its closing price of one year ago, HR's share price has jumped by 39.84%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, HEALTHCARE REALTY TRUST INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for HEALTHCARE REALTY TRUST INC is currently lower than what is desirable, coming in at 26.50%. Regardless of HR's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, HR's net profit margin of -1.20% significantly underperformed when compared to the industry average.
- You can view the full Healthcare Realty Ratings Report.