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 "Hold." Corporate Office Properties (NYSE: OFC) shares currently have a dividend yield of 4.70%. 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 580,000 shares per day over the past 30 days. Corporate Office Properties has a market cap of $2.0 billion and is part of the real estate industry. Shares are down 7% year to date as of the close of trading on Thursday. TheStreet Ratings rates Corporate Office Properties as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and poor profit margins. Highlights from the ratings report include:
- OFC's revenue growth has slightly outpaced the industry average of 10.8%. Since the same quarter one year prior, revenues rose by 11.2%. 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.
- CORP OFFICE PPTYS TR INC has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, CORP OFFICE PPTYS TR INC continued to lose money by earning -$0.18 versus -$1.32 in the prior year. This year, the market expects an improvement in earnings ($0.35 versus -$0.18).
- In its most recent trading session, OFC has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
- Net operating cash flow has significantly decreased to $14.22 million or 79.12% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 147.4% when compared to the same quarter one year ago, falling from $11.31 million to -$5.37 million.
- You can view the full Corporate Office Properties Ratings Report.