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 "Buy." Starwood Property (NYSE: STWD) shares currently have a dividend yield of 7.20%. Starwood Property Trust, Inc. engages in originating, investing in, financing, and managing commercial mortgage loans, other commercial real estate debt investments, commercial mortgage-backed securities, and other commercial real estate-related debt investments. The company has a P/E ratio of 15.21. The average volume for Starwood Property has been 2,237,700 shares per day over the past 30 days. Starwood Property has a market cap of $4.2 billion and is part of the real estate industry. Shares are up 10.6% year to date as of the close of trading on Monday. TheStreet Ratings rates Starwood Property as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, increase in stock price during the past year and compelling growth in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- STWD's very impressive revenue growth greatly exceeded the industry average of 9.2%. Since the same quarter one year prior, revenues leaped by 102.8%. 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.
- STARWOOD PROPERTY TRUST INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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, STARWOOD PROPERTY TRUST INC increased its bottom line by earning $1.78 versus $1.41 in the prior year. This year, the market expects an improvement in earnings ($2.01 versus $1.78).
- 48.43% is the gross profit margin for STARWOOD PROPERTY TRUST INC 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, STWD's net profit margin of 43.66% significantly outperformed against the industry.
- 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. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Real Estate Investment Trusts (REITs) industry average, but is greater than that of the S&P 500. The net income increased by 40.0% when compared to the same quarter one year prior, rising from $44.49 million to $62.28 million.
- You can view the full Starwood Property Ratings Report.