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." Associated Estates Realty (NYSE: AEC) shares currently have a dividend yield of 4.70%. Associated Estates Realty Corporation is an independent real estate investment trust. The firm invests in the real estate markets of the United States. It specializes in owning and managing apartment communities in the Midwest, Mid-Atlantic and Southeast regions of the United States. The company has a P/E ratio of 94.76. The average volume for Associated Estates Realty has been 682,900 shares per day over the past 30 days. Associated Estates Realty has a market cap of $926.4 million and is part of the real estate industry. Shares are down 0.1% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Associated Estates Realty as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall. Highlights from the ratings report include:
- AEC's revenue growth has slightly outpaced the industry average of 9.5%. Since the same quarter one year prior, revenues rose by 10.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- ASSOCIATED ESTATES RLTY CORP 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 two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ASSOCIATED ESTATES RLTY CORP turned its bottom line around by earning $0.00 versus -$0.27 in the prior year. This year, the market expects an increase in earnings to $0.69 from $0.00.
- The gross profit margin for ASSOCIATED ESTATES RLTY CORP is rather low; currently it is at 19.83%. Regardless of AEC's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, AEC's net profit margin of 42.08% significantly outperformed against the industry.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength 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, ASSOCIATED ESTATES RLTY CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- Net operating cash flow has declined marginally to $19.81 million or 6.81% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Associated Estates Realty Ratings Report.