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 4 stocks with substantial yields, that ultimately, we have rated "Hold." Piedmont Office Realty (NYSE: PDM) shares currently have a dividend yield of 4.80%. Piedmont Office Realty Trust, Inc. engages in the acquisition and ownership of commercial real estate properties in the United States. Its property portfolio primarily consists of office and industrial buildings, warehouses, and manufacturing facilities. The company has a P/E ratio of 37.40. The average volume for Piedmont Office Realty has been 1,082,100 shares per day over the past 30 days. Piedmont Office Realty has a market cap of $2.7 billion and is part of the real estate industry. Shares are down 6.4% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Piedmont Office Realty as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including poor profit margins and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- 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 76.3% when compared to the same quarter one year prior, rising from $10.83 million to $19.10 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.6%. Since the same quarter one year prior, revenues slightly increased by 8.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has slightly increased to $79.99 million or 8.02% when compared to the same quarter last year. Despite an increase in cash flow, PIEDMONT OFFICE REALTY TRUST's average is still marginally south of the industry average growth rate of 8.47%.
- PDM has underperformed the S&P 500 Index, declining 9.95% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The gross profit margin for PIEDMONT OFFICE REALTY TRUST is rather low; currently it is at 24.41%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 13.21% trails that of the industry average.
- You can view the full Piedmont Office Realty Ratings Report.