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 "Buy." National Health Investors (NYSE: NHI) shares currently have a dividend yield of 4.90%. National Health Investors, Inc., a real estate investment trust (REIT), invests in health care properties, primarily in the long-term care industry in the United States. The company has a P/E ratio of 19.67. The average volume for National Health Investors has been 204,800 shares per day over the past 30 days. National Health Investors has a market cap of $2.0 billion and is part of the real estate industry. Shares are up 6.9% year-to-date as of the close of trading on Friday. TheStreet Ratings rates National Health Investors as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, expanding profit margins, good cash flow from operations and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 9.6%. Since the same quarter one year prior, revenues rose by 31.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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, NATIONAL HEALTH INVESTORS's return on equity exceeds that of both the industry average and the S&P 500.
- The gross profit margin for NATIONAL HEALTH INVESTORS is currently very high, coming in at 82.60%. It has increased significantly from the same period last year. Along with this, the net profit margin of 133.69% significantly outperformed against the industry average.
- Net operating cash flow has increased to $26.49 million or 21.15% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 8.60%.
- NATIONAL HEALTH INVESTORS 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. During the past fiscal year, NATIONAL HEALTH INVESTORS increased its bottom line by earning $2.68 versus $2.64 in the prior year. This year, the market expects an improvement in earnings ($2.71 versus $2.68).
- You can view the full National Health Investors Ratings Report.