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 4 stocks with substantial yields, that ultimately, we have rated "Hold."James Hardie Industries (NYSE: JHX) shares currently have a dividend yield of 8.40%. James Hardie Industries plc, together with its subsidiaries, manufactures and sells fiber cement products for interior and exterior building construction applications primarily in the United States, Canada, Australia, New Zealand, the Philippines, and Europe. The company has a P/E ratio of 6.38. The average volume for James Hardie Industries has been 8,500 shares per day over the past 30 days. James Hardie Industries has a market cap of $3.9 billion and is part of the materials & construction industry. Shares are down 11.3% year to date as of the close of trading on Monday. TheStreet Ratings rates James Hardie Industries as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, premium valuation and weak operating cash flow. Highlights from the ratings report include:
- JHX's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 5.7%. 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.
- JHX 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. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.43, which illustrates the ability to avoid short-term cash problems.
- 35.20% is the gross profit margin for JAMES HARDIE INDUSTRIES PLC which we consider to be strong. Regardless of JHX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, JHX's net profit margin of -21.26% significantly underperformed when compared to the industry average.
- Net operating cash flow has significantly decreased to $26.00 million or 90.64% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full James Hardie Industries Ratings Report.
- CCCL's debt-to-equity ratio is very low at 0.04 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.37, which clearly demonstrates the ability to cover short-term cash needs.
- CCCL, with its very weak revenue results, has greatly underperformed against the industry average of 3.4%. Since the same quarter one year prior, revenues plummeted by 59.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Building Products industry. The net income has significantly decreased by 107.6% when compared to the same quarter one year ago, falling from $11.38 million to -$0.87 million.
- The gross profit margin for CHINA CERAMICS CO LTD is currently extremely low, coming in at 14.80%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -3.60% trails that of the industry average.
- You can view the full China Ceramics Ratings Report.
- The revenue growth came in higher than the industry average of 10.7%. Since the same quarter one year prior, revenues rose by 11.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- QR ENERGY LP has improved earnings per share by 15.4% 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, QR ENERGY LP increased its bottom line by earning $0.54 versus $0.35 in the prior year. This year, the market expects an improvement in earnings ($0.83 versus $0.54).
- The gross profit margin for QR ENERGY LP is rather high; currently it is at 59.20%. Regardless of QRE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, QRE's net profit margin of -7.79% significantly underperformed when compared to the industry average.
- Net operating cash flow has decreased to $33.92 million or 33.92% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, QR ENERGY LP has marginally lower results.
- In its most recent trading session, QRE has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- You can view the full QR Energy Ratings Report.
- The revenue growth came in higher than the industry average of 12.1%. Since the same quarter one year prior, revenues rose by 35.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- UMH PROPERTIES INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, UMH PROPERTIES INC reported lower earnings of $0.11 versus $0.14 in the prior year.
- In its most recent trading session, UMH has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
- Net operating cash flow has decreased to $1.68 million or 39.11% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full UMH Properties Ratings Report.
- Our dividend calendar.