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." Select Income REIT (NYSE: SIR) shares currently have a dividend yield of 6.30%. Select Income REIT is a real estate investment trust managed by Reit Management & Research LLC. The firm invests in the real estate markets of United States with a focus on Hawaii. The fund seeks to invest in office and industrial properties. Select Income REIT is domiciled in United States. The company has a P/E ratio of 16.62. The average volume for Select Income REIT has been 438,900 shares per day over the past 30 days. Select Income REIT has a market cap of $1.1 billion and is part of the real estate industry. Shares are up 10.8% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Select Income REIT as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good. Highlights from the ratings report include:
- SIR's very impressive revenue growth greatly exceeded the industry average of 12.3%. Since the same quarter one year prior, revenues leaped by 59.3%. 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.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Real Estate Investment Trusts (REITs) industry average. The net income increased by 28.2% when compared to the same quarter one year prior, rising from $17.66 million to $22.63 million.
- When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, SELECT INCOME REIT's return on equity is below that of both the industry average and the S&P 500.
- 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.
- SELECT INCOME REIT' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, SELECT INCOME REIT increased its bottom line by earning $2.10 versus $0.57 in the prior year. This year, the market expects earnings to be in line with last year ($2.10 versus $2.10).
- You can view the full Select Income REIT Ratings Report.
- RRD's revenue growth has slightly outpaced the industry average of 9.3%. Since the same quarter one year prior, revenues slightly increased by 0.5%. 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.
- RRD's share price has surged by 30.68% 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.
- DONNELLEY (R R) & SONS CO's earnings per share declined by 28.6% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, DONNELLEY (R R) & SONS CO reported poor results of -$3.61 versus -$0.73 in the prior year. This year, the market expects an improvement in earnings ($1.63 versus -$3.61).
- The gross profit margin for DONNELLEY (R R) & SONS CO is rather low; currently it is at 21.99%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.06% trails that of the industry average.
- Net operating cash flow has significantly decreased to -$95.80 million or 84.23% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full R.R. Donnelley & Sons Company Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Telecommunication Services industry. The net income increased by 79.8% when compared to the same quarter one year prior, rising from $26.77 million to $48.14 million.
- 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. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- The debt-to-equity ratio is very high at 2.07 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, FTR has managed to keep a strong quick ratio of 1.51, which demonstrates the ability to cover short-term cash needs.
- Net operating cash flow has declined marginally to $359.29 million or 6.07% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, FRONTIER COMMUNICATIONS CORP has marginally lower results.
- You can view the full Frontier Communications Corp Class B Ratings Report.
- Our dividend calendar.