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 5 stocks with substantial yields, that ultimately, we have rated "Hold." Realty Income Corporation (NYSE: O) shares currently have a dividend yield of 5.50%. Realty Income Corporation is a publicly traded real estate investment trust. It invests in the real estate markets of the United States. The firm makes investments in commercial real estate. Realty Income Corporation was founded in 1969 and is based in Escondido, California. The company has a P/E ratio of 47.80. The average volume for Realty Income Corporation has been 2,086,000 shares per day over the past 30 days. Realty Income Corporation has a market cap of $8.2 billion and is part of the real estate industry. Shares are up 8.6% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Realty Income Corporation as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- O's very impressive revenue growth greatly exceeded the industry average of 9.6%. Since the same quarter one year prior, revenues leaped by 70.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the 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 37.7% when compared to the same quarter one year prior, rising from $37.46 million to $51.57 million.
- REALTY INCOME CORP has improved earnings per share by 5.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, REALTY INCOME CORP reported lower earnings of $0.75 versus $0.96 in the prior year. This year, the market expects an improvement in earnings ($0.99 versus $0.75).
- O has underperformed the S&P 500 Index, declining 9.50% 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 company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, REALTY INCOME CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Realty Income Corporation Ratings Report.