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." American Campus Communities (NYSE: ACC) shares currently have a dividend yield of 4.10%. American Campus Communities, Inc. is an independent equity real estate investment trust. The firm invests in the real estate markets of the United States. It primarily engages in developing, owning, and managing high-quality student housing communities. The company has a P/E ratio of 74.36. The average volume for American Campus Communities has been 777,000 shares per day over the past 30 days. American Campus Communities has a market cap of $3.7 billion and is part of the real estate industry. Shares are down 24.2% year to date as of the close of trading on Tuesday. TheStreet Ratings rates American Campus Communities as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and unimpressive growth in net income. Highlights from the ratings report include:
- ACC's very impressive revenue growth greatly exceeded the industry average of 10.8%. Since the same quarter one year prior, revenues leaped by 53.3%. 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.
- Net operating cash flow has increased to $45.73 million or 43.77% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 5.47%.
- 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, AMERICAN CAMPUS COMMUNITIES underperformed against that of the industry average and is significantly less than that of the S&P 500.
- AMERICAN CAMPUS COMMUNITIES 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. Stable earnings per share over the past year indicate the company has managed its earnings and share float. We anticipate this stability to falter in the coming year and, in turn, the company to deliver lower earnings per share than prior full year. During the past fiscal year, AMERICAN CAMPUS COMMUNITIES reported lower earnings of $0.57 versus $0.58 in the prior year. For the next year, the market is expecting a contraction of 7.0% in earnings ($0.53 versus $0.57).
- 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 34.7% when compared to the same quarter one year ago, falling from $12.33 million to $8.05 million.
- You can view the full American Campus Communities Ratings Report.
- VIV's debt-to-equity ratio is very low at 0.21 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.13, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for TELEFONICA BRASIL SA is rather high; currently it is at 61.19%. Regardless of VIV's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VIV's net profit margin of 10.89% compares favorably to the industry average.
- 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. In comparison to the other companies in the Diversified Telecommunication Services industry and the overall market, TELEFONICA BRASIL SA's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Net operating cash flow has declined marginally to $798.50 million or 4.83% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, TELEFONICA BRASIL SA has marginally lower results.
- You can view the full Telefonica Brasil S.A Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electric Utilities industry. The net income increased by 71.3% when compared to the same quarter one year prior, rising from $286.00 million to $490.00 million.
- EXC's revenue growth trails the industry average of 16.5%. Since the same quarter one year prior, revenues slightly increased by 2.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.93, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that EXC's debt-to-equity ratio is low, the quick ratio, which is currently 0.62, displays a potential problem in covering short-term cash needs.
- EXC has underperformed the S&P 500 Index, declining 13.13% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- 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. When compared to other companies in the Electric Utilities industry and the overall market, EXELON CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Exelon Ratings Report.
- Our dividend calendar.