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." Education Realty (NYSE: EDR) shares currently have a dividend yield of 5.10%. 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 217.50. The average volume for Education Realty has been 1,331,800 shares per day over the past 30 days. Education Realty has a market cap of $998.9 million and is part of the real estate industry. Shares are down 18.2% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Education Realty as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share 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, unimpressive growth in net income and poor profit margins. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 9.5%. Since the same quarter one year prior, revenues rose by 34.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- EDUCATION REALTY TRUST INC has improved earnings per share by 20.0% 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, EDUCATION REALTY TRUST INC turned its bottom line around by earning $0.00 versus -$0.08 in the prior year. This year, the market expects an increase in earnings to $0.09 from $0.00.
- 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 1012.5% when compared to the same quarter one year ago, falling from $0.49 million to -$4.46 million.
- EDR has underperformed the S&P 500 Index, declining 13.40% 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.
- You can view the full Education Realty Ratings Report.