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 "Hold." CommonWealth REIT (NYSE: CWH) shares currently have a dividend yield of 4.90%. 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 51.08. The average volume for CommonWealth REIT has been 2,870,000 shares per day over the past 30 days. CommonWealth REIT has a market cap of $2.4 billion and is part of the real estate industry. Shares are up 29% year to date as of the close of trading on Friday. TheStreet Ratings rates CommonWealth REIT as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth and increase in net income. However, as a counter to these strengths, we find that the company's return on equity has been disappointing. Highlights from the ratings report include:
- CWH's revenue growth has slightly outpaced the industry average of 12.0%. Since the same quarter one year prior, revenues rose by 13.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- COMMONWEALTH REIT has improved earnings per share by 33.3% 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, COMMONWEALTH REIT increased its bottom line by earning $0.34 versus $0.19 in the prior year.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- 36.70% is the gross profit margin for COMMONWEALTH REIT which we consider to be strong. Regardless of CWH's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CWH's net profit margin of 9.17% is significantly lower than the industry average.
- 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, COMMONWEALTH REIT underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full CommonWealth REIT Ratings Report.