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 4 stocks with substantial yields, that ultimately, we have rated "Hold." Education Realty (NYSE: EDR) shares currently have a dividend yield of 5.00%. Education Realty Trust, Inc., a real estate investment trust (REIT), develops, acquires, owns, and manages student housing communities located near university campuses in the United States. The company has a P/E ratio of 290.67. The average volume for Education Realty has been 1,332,000 shares per day over the past 30 days. Education Realty has a market cap of $1.0 billion and is part of the real estate industry. Shares are down 18.1% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Education Realty 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 also find weaknesses including poor profit margins and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 10.8%. Since the same quarter one year prior, revenues rose by 30.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 205.1% when compared to the same quarter one year prior, rising from $1.26 million to $3.83 million.
- Net operating cash flow has slightly increased to $17.56 million or 2.68% when compared to the same quarter last year. Despite an increase in cash flow, EDUCATION REALTY TRUST INC's average is still marginally south of the industry average growth rate of 5.35%.
- This stock's share value has moved by only 27.10% over the past year. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- The gross profit margin for EDUCATION REALTY TRUST INC is currently extremely low, coming in at 9.55%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 9.10% significantly trails the industry average.
- You can view the full Education Realty Ratings Report.