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 "Buy." HCP (NYSE: HCP) shares currently have a dividend yield of 5.20%. HCP, Inc. is an independent hybrid real estate investment trust. The fund invests in real estate markets of the United States. The company has a P/E ratio of 21.42. The average volume for HCP has been 3,178,100 shares per day over the past 30 days. HCP has a market cap of $18.5 billion and is part of the real estate industry. Shares are down 10.9% year to date as of the close of trading on Thursday. TheStreet Ratings rates HCP as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- HCP's revenue growth has slightly outpaced the industry average of 9.2%. Since the same quarter one year prior, revenues rose by 11.7%. 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.
- Net operating cash flow has increased to $357.25 million or 20.25% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -0.31%.
- HCP 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, HCP INC increased its bottom line by earning $1.82 versus $1.27 in the prior year. This year, the market expects an improvement in earnings ($2.00 versus $1.82).
- The gross profit margin for HCP INC is rather high; currently it is at 60.60%. Regardless of HCP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HCP's net profit margin of 40.12% significantly outperformed against the industry.
- The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Real Estate Investment Trusts (REITs) industry average. The net income increased by 5.6% when compared to the same quarter one year prior, going from $202.02 million to $213.40 million.
- You can view the full HCP Ratings Report.