Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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."Preferred Apartment Communities (AMEX: APTS) shares currently have a dividend yield of 7.10%. Preferred Apartment Communities, Inc. is a real estate investment trust launched and managed by Preferred Apartment Advisors, LLC. The fund invests in real estate markets of the United States. It primarily acquires and operates multifamily apartment properties. The average volume for Preferred Apartment Communities has been 29,100 shares per day over the past 30 days. Preferred Apartment Communities has a market cap of $44.7 million and is part of the real estate industry. Shares are up 7.8% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Preferred Apartment Communities as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in stock price during the past year and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- APTS's very impressive revenue growth greatly exceeded the industry average of 12.1%. Since the same quarter one year prior, revenues leaped by 127.4%. 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.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. 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.
- 36.50% is the gross profit margin for PREFERRED APARTMENT CMNTYS which we consider to be strong. Regardless of APTS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, APTS's net profit margin of -52.14% 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 554.9% when compared to the same quarter one year ago, falling from -$0.48 million to -$3.12 million.
- Net operating cash flow has decreased to $0.76 million or 18.44% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, PREFERRED APARTMENT CMNTYS has marginally lower results.
- You can view the full Preferred Apartment Communities Ratings Report.
- PBT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign.
- The gross profit margin for PERMIAN BASIN ROYALTY TRUST is currently very high, coming in at 100.00%. PBT has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, PBT's net profit margin of 95.37% significantly outperformed against the industry.
- PBT, with its very weak revenue results, has greatly underperformed against the industry average of 10.5%. Since the same quarter one year prior, revenues plummeted by 65.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- PERMIAN BASIN ROYALTY TRUST has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, PERMIAN BASIN ROYALTY TRUST reported lower earnings of $1.16 versus $1.36 in the prior year.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 66.7% when compared to the same quarter one year ago, falling from $20.10 million to $6.70 million.
- You can view the full Permian Basin Royalty Ratings Report.
- VOC has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign.
- The gross profit margin for VOC ENERGY TRUST is currently very high, coming in at 100.00%. VOC has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, VOC's net profit margin of 99.39% significantly outperformed against the industry.
- 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. In comparison to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, VOC ENERGY TRUST has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 30.58%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 40.90% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 40.9% when compared to the same quarter one year ago, falling from $7.48 million to $4.42 million.
- You can view the full VOC Energy Ratings Report.
- Our dividend calendar.