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." SouFun Holdings (NYSE: SFUN) shares currently have a dividend yield of 5.20%. SouFun Holdings Limited operates a real estate Internet portal, and a home furnishing and improvement Website in the People's Republic of China. The company has a P/E ratio of 16.35. The average volume for SouFun Holdings has been 518,000 shares per day over the past 30 days. SouFun Holdings has a market cap of $3.1 billion and is part of the internet industry. Shares are up 47.3% year to date as of the close of trading on Tuesday. TheStreet Ratings rates SouFun Holdings as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 22.6%. Since the same quarter one year prior, revenues rose by 48.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 67.50% and other important driving factors, this stock has surged by 192.20% over the past year, outperforming the rise in the S&P 500 Index during the same period. 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.
- 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 Internet Software & Services industry and the overall market, SOUFUN HLDGS LTD's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The debt-to-equity ratio of 1.23 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, SFUN has a quick ratio of 0.63, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full SouFun Holdings Ratings Report.