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." Resource Capital Corporation (NYSE: RSO) shares currently have a dividend yield of 13.20%. Resource Capital Corp., a specialty finance company, purchases and manages a diversified portfolio of commercial real estate-related assets and commercial finance assets in the United States. The company has a P/E ratio of 12.10. The average volume for Resource Capital Corporation has been 1,024,400 shares per day over the past 30 days. Resource Capital Corporation has a market cap of $768.4 million and is part of the real estate industry. Shares are up 11.1% year to date as of the close of trading on Friday. TheStreet Ratings rates Resource Capital Corporation as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, increase in stock price during the past year and expanding profit margins. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good. Highlights from the ratings report include:
- Net operating cash flow has increased to $23.44 million or 33.15% when compared to the same quarter last year.
- Compared to its price level of one year ago, RSO is up 1.85% to its most recent closing price of 6.05. Looking ahead, our view is that this company's fundamentals should not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- The net income has significantly decreased by 49.3% when compared to the same quarter one year ago, falling from $16.45 million to $8.33 million.
- 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.
- RESOURCE CAPITAL CORP 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. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, RESOURCE CAPITAL CORP increased its bottom line by earning $0.72 versus $0.56 in the prior year. For the next year, the market is expecting a contraction of 4.2% in earnings ($0.69 versus $0.72).
- You can view the full Resource Capital Corporation Ratings Report.