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 "Sell." Preferred Apartment Communities (AMEX: APTS) shares currently have a dividend yield of 8.00%. Preferred Apartment Communities, Inc. is a real estate investment trust launched and managed by Preferred Apartment Advisors, LLC. The fund invests in real estate markets of the United States. It primarily acquires and operates multifamily apartment properties. The average volume for Preferred Apartment Communities has been 69,500 shares per day over the past 30 days. Preferred Apartment Communities has a market cap of $119.3 million and is part of the real estate industry. Shares are up 2.7% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Preferred Apartment Communities as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and feeble growth in its earnings per share. Highlights from the ratings report include:
- 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 34.2% when compared to the same quarter one year ago, falling from $0.15 million to $0.10 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, PREFERRED APARTMENT CMNTYS's return on equity significantly trails that of both the industry average and the S&P 500.
- PREFERRED APARTMENT CMNTYS's earnings have gone downhill when comparing its most recently reported quarter with the same quarter a year earlier. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, PREFERRED APARTMENT CMNTYS continued to lose money by earning -$0.11 versus -$1.67 in the prior year. For the next year, the market is expecting a contraction of 1050.0% in earnings (-$1.27 versus -$0.11).
- This stock has managed to decline in share value by 1.92% over the past twelve months. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- The gross profit margin for PREFERRED APARTMENT CMNTYS is rather high; currently it is at 61.13%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, APTS's net profit margin of 1.11% significantly trails the industry average.
- You can view the full Preferred Apartment Communities Ratings Report.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 31.95%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 91.40% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- APOLLO RESIDENTIAL MTG INC 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. For the next year, the market is expecting a contraction of 74.1% in earnings ($2.12 versus $8.19).
- 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 83.4% when compared to the same quarter one year ago, falling from $70.40 million to $11.69 million.
- Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, APOLLO RESIDENTIAL MTG INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for APOLLO RESIDENTIAL MTG INC is currently very high, coming in at 82.48%. Regardless of AMTG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AMTG's net profit margin of 33.95% significantly outperformed against the industry.
- You can view the full Apollo Residential Mortgage Ratings Report.
- The gross profit margin for SOUTHCROSS ENERGY PRTNRS LP is currently extremely low, coming in at 5.66%. Regardless of SXE's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -2.53% trails the industry average.
- The change in net income from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has decreased by 0.7% when compared to the same quarter one year ago, dropping from -$4.04 million to -$4.07 million.
- SXE's debt-to-equity ratio of 0.80 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.87 is weak.
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, SOUTHCROSS ENERGY PRTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- SXE's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 27.95%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter.
- You can view the full Southcross Energy Partners Ratings Report.
- Our dividend calendar.