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." Digital Realty (NYSE: DLR) shares currently have a dividend yield of 6.00%. Digital Realty Trust, Inc., a real estate investment trust (REIT), through its controlling interest in Digital Realty Trust, L.P., engages in the ownership, acquisition, development, redevelopment, and management of technology-related real estate. The company has a P/E ratio of 24.08. The average volume for Digital Realty has been 1,916,400 shares per day over the past 30 days. Digital Realty has a market cap of $6.6 billion and is part of the real estate industry. Shares are up 8% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Digital Realty as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth and compelling growth in net income. 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:
- DLR's revenue growth has slightly outpaced the industry average of 9.6%. Since the same quarter one year prior, revenues rose by 10.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- DIGITAL REALTY TRUST INC 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. This trend suggests that the performance of the business is improving. During the past fiscal year, DIGITAL REALTY TRUST INC increased its bottom line by earning $1.47 versus $1.31 in the prior year. This year, the market expects an improvement in earnings ($1.98 versus $1.47).
- DLR'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 25.37%, 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. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The gross profit margin for DIGITAL REALTY TRUST INC is rather low; currently it is at 22.86%. It has decreased from the same quarter the previous year. Despite the weak results of the gross profit margin, the net profit margin of 39.47% has significantly outperformed against the industry average.
- You can view the full Digital Realty Ratings Report.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to the other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ARMOUR RESIDENTIAL REIT INC's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- ARR, with its very weak revenue results, has greatly underperformed against the industry average of 9.6%. Since the same quarter one year prior, revenues plummeted by 216.3%. Weakness in the company's revenue seems to have hurt the 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 518.5% when compared to the same quarter one year ago, falling from $54.94 million to -$229.94 million.
- Net operating cash flow has decreased to $86.27 million or 18.52% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full ARMOUR Residential REIT Ratings Report.
- OZM's very impressive revenue growth greatly exceeded the industry average of 1.3%. Since the same quarter one year prior, revenues leaped by 52.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 115.73% and other important driving factors, this stock has surged by 71.75% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- The gross profit margin for OCH-ZIFF CAPITAL MGMT LP is rather high; currently it is at 58.38%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 9.69% trails the industry average.
- Net operating cash flow has significantly increased by 283.19% to $215.81 million when compared to the same quarter last year. Despite an increase in cash flow of 283.19%, OCH-ZIFF CAPITAL MGMT LP is still growing at a significantly lower rate than the industry average of 460.58%.
- You can view the full Och-Ziff Capital Management Group Ratings Report.
- Our dividend calendar.