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 4.50%. 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 66.54. The average volume for American Campus Communities has been 886,400 shares per day over the past 30 days. American Campus Communities has a market cap of $3.3 billion and is part of the real estate industry. Shares are down 29.8% year-to-date as of the close of trading on Wednesday. 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, good cash flow from operations and compelling growth in net income. 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 disappointing return on equity. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 9.5%. Since the same quarter one year prior, revenues rose by 41.2%. 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 net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 7424.1% when compared to the same quarter one year prior, rising from $0.63 million to $47.18 million.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 25.82%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 150.00% compared to the year-earlier quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, ACC is still more expensive than most of the other companies in its industry.
- AMERICAN CAMPUS COMMUNITIES has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, AMERICAN CAMPUS COMMUNITIES reported lower earnings of $0.55 versus $0.58 in the prior year. For the next year, the market is expecting a contraction of 15.4% in earnings ($0.47 versus $0.55).
- You can view the full American Campus Communities Ratings Report.
- Net operating cash flow has increased to $52.96 million or 11.00% when compared to the same quarter last year. In addition, COMMONWEALTH REIT has also modestly surpassed the industry average cash flow growth rate of 8.44%.
- Compared to its closing price of one year ago, CWH's share price has jumped by 59.46%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- CWH, with its decline in revenue, underperformed when compared the industry average of 9.5%. Since the same quarter one year prior, revenues slightly dropped by 7.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- 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 1327.8% when compared to the same quarter one year ago, falling from $17.62 million to -$216.32 million.
- The gross profit margin for COMMONWEALTH REIT is rather low; currently it is at 19.32%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -101.81% is significantly below that of the industry average.
- You can view the full CommonWealth REIT Ratings Report.
- PM's revenue growth has slightly outpaced the industry average of 1.4%. Since the same quarter one year prior, revenues slightly increased by 0.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- PHILIP MORRIS INTERNATIONAL has improved earnings per share by 9.1% 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, PHILIP MORRIS INTERNATIONAL increased its bottom line by earning $5.18 versus $4.84 in the prior year. This year, the market expects an improvement in earnings ($5.41 versus $5.18).
- The gross profit margin for PHILIP MORRIS INTERNATIONAL is rather high; currently it is at 69.43%. Regardless of PM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PM's net profit margin of 29.51% compares favorably to the industry average.
- The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Tobacco industry average. The net income increased by 5.1% when compared to the same quarter one year prior, going from $2,227.00 million to $2,340.00 million.
- In its most recent trading session, PM 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. 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 Philip Morris International Ratings Report.
- Our dividend calendar.