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." Piedmont Office Realty (NYSE: PDM) shares currently have a dividend yield of 4.50%. Piedmont Office Realty Trust, Inc. engages in the acquisition and ownership of commercial real estate properties in the United States. Its property portfolio primarily consists of office and industrial buildings, warehouses, and manufacturing facilities. The company has a P/E ratio of 44.05. The average volume for Piedmont Office Realty has been 1,053,200 shares per day over the past 30 days. Piedmont Office Realty has a market cap of $2.9 billion and is part of the real estate industry. Shares are down 2.4% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Piedmont Office Realty as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, poor profit margins and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.8%. Since the same quarter one year prior, revenues slightly increased by 2.0%. 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.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, PIEDMONT OFFICE REALTY TRUST underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for PIEDMONT OFFICE REALTY TRUST is rather low; currently it is at 24.85%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 26.21% trails that of the industry average.
- You can view the full Piedmont Office Realty Ratings Report.
- ECA's very impressive revenue growth greatly exceeded the industry average of 6.5%. Since the same quarter one year prior, revenues leaped by 171.4%. Growth in the company's revenue appears to have helped boost the 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 Oil, Gas & Consumable Fuels industry. The net income increased by 149.3% when compared to the same quarter one year prior, rising from -$1,482.00 million to $730.00 million.
- ENCANA CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, ENCANA CORP swung to a loss, reporting -$3.79 versus $0.15 in the prior year.
- ECA has underperformed the S&P 500 Index, declining 18.93% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The debt-to-equity ratio of 1.45 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, ECA's quick ratio is somewhat strong at 1.41, demonstrating the ability to handle short-term liquidity needs.
- You can view the full Encana Ratings Report.
- KMI's very impressive revenue growth greatly exceeded the industry average of 6.5%. Since the same quarter one year prior, revenues leaped by 56.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the 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 Oil, Gas & Consumable Fuels industry. The net income increased by 319.8% when compared to the same quarter one year prior, rising from -$126.00 million to $277.00 million.
- KINDER MORGAN INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, KINDER MORGAN INC increased its bottom line by earning $1.22 versus $0.55 in the prior year. For the next year, the market is expecting a contraction of 4.9% in earnings ($1.16 versus $1.22).
- In its most recent trading session, KMI 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. This company's share value has not moved any higher or lower than its level twelve months ago.
- The debt-to-equity ratio is very high at 2.60 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.34, which clearly demonstrates the inability to cover short-term cash needs.
- You can view the full Kinder Morgan Ratings Report.
- Our dividend calendar.