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." Duke Realty (NYSE: DRE) shares currently have a dividend yield of 4.40%. Duke Realty Corporation operates as a real estate investment trust (REIT) in the United States. It offers leasing, property and asset management, development, construction, build-to-suit, and other tenant-related services. The company has a P/E ratio of 256.67. The average volume for Duke Realty has been 2,471,200 shares per day over the past 30 days. Duke Realty has a market cap of $5.0 billion and is part of the real estate industry. Shares are up 4.3% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Duke Realty as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including relatively poor performance when compared with the S&P 500 during the past year and poor profit margins. 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 450.3% when compared to the same quarter one year prior, rising from -$21.96 million to $76.93 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.7%. Since the same quarter one year prior, revenues slightly increased by 2.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- DUKE REALTY CORP 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, DUKE REALTY CORP turned its bottom line around by earning $0.06 versus -$0.51 in the prior year. For the next year, the market is expecting a contraction of 500.0% in earnings (-$0.24 versus $0.06).
- The gross profit margin for DUKE REALTY CORP is rather low; currently it is at 18.21%. Regardless of DRE's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, DRE's net profit margin of 27.77% compares favorably to the industry average.
- In its most recent trading session, DRE has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- You can view the full Duke Realty Ratings Report.