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." Corporate Office Properties (NYSE: OFC) shares currently have a dividend yield of 4.10%. Owns, manages, leases, acquires and develops suburban office properties located in the Greater Washington DC and other markets. At Dec. 31, 2005, this self-managed real estate investment trust owned 165 operating office properties with 13.7 million rentable square feet and several land parcels. The average volume for Corporate Office Properties has been 595,700 shares per day over the past 30 days. Corporate Office Properties has a market cap of $2.3 billion and is part of the real estate industry. Shares are up 6% year to date as of the close of trading on Monday. TheStreet Ratings rates Corporate Office Properties as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, good cash flow from operations and solid stock price performance. However, as a counter to these strengths, we find that the company's profit margins have been poor overall. Highlights from the ratings report include:
- 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 45.9% when compared to the same quarter one year prior, rising from $10.30 million to $15.02 million.
- Net operating cash flow has slightly increased to $47.31 million or 8.04% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -19.11%.
- OFC's share price has surged by 27.70% over the past year, reflecting the market's general trend, despite their weak earnings growth during the last quarter. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- 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, CORP OFFICE PPTYS TR INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for CORP OFFICE PPTYS TR INC is currently lower than what is desirable, coming in at 27.76%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 11.38% significantly trails the industry average.
- You can view the full Corporate Office Properties Ratings Report.
- The revenue growth came in higher than the industry average of 10.8%. Since the same quarter one year prior, revenues slightly increased by 4.2%. 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.
- Net operating cash flow has significantly increased by 842.17% to $334.59 million when compared to the same quarter last year. In addition, LINN ENERGY LLC has also vastly surpassed the industry average cash flow growth rate of -26.07%.
- 40.39% is the gross profit margin for LINN ENERGY LLC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, LINE's net profit margin of -60.12% significantly underperformed when compared to the industry average.
- Currently the debt-to-equity ratio of 1.53 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.40, which clearly demonstrates the inability to cover short-term cash needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LINN ENERGY LLC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Linn Energy Ratings Report.
- BDN's revenue growth has slightly outpaced the industry average of 12.3%. Since the same quarter one year prior, revenues rose by 14.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The strong earnings growth this company has enjoyed -- up -- has apparently played a role in driving up its share price by a solid 26.39%. In addition, the rise in the general market has likely contributed to this stock's strong performance during this past year.Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- BRANDYWINE REALTY TRUST reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. 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, BRANDYWINE REALTY TRUST reported poor results of -$0.34 versus -$0.19 in the prior year. This year, the market expects an improvement in earnings ($0.09 versus -$0.34).
- 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, BRANDYWINE REALTY TRUST underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for BRANDYWINE REALTY TRUST is currently lower than what is desirable, coming in at 27.50%. Regardless of BDN's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, BDN's net profit margin of 4.61% is significantly lower than the industry average.
- You can view the full Brandywine Realty Ratings Report.
- Our dividend calendar.