Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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 "Buy."Resource Capital Corporation (NYSE: RSO) shares currently have a dividend yield of 13.60%. Resource Capital Corp., a specialty finance company, purchases and manages a diversified portfolio of commercial real estate-related assets and commercial finance assets in the United States. The company has a P/E ratio of 12.29. The average volume for Resource Capital Corporation has been 885,400 shares per day over the past 30 days. Resource Capital Corporation has a market cap of $753.7 million and is part of the real estate industry. Shares are down 0.7% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Resource Capital Corporation as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, attractive valuation levels and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry average. The net income increased by 30.6% when compared to the same quarter one year prior, rising from $18.46 million to $24.12 million.
- The gross profit margin for RESOURCE CAPITAL CORP is rather high; currently it is at 55.97%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, RSO's net profit margin of 68.27% significantly outperformed against the industry.
- RSO, with its decline in revenue, underperformed when compared the industry average of 9.7%. Since the same quarter one year prior, revenues fell by 19.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- You can view the full Resource Capital Corporation Ratings Report.
- LRE's very impressive revenue growth greatly exceeded the industry average of 1.4%. Since the same quarter one year prior, revenues leaped by 111.8%. Growth in the company's revenue appears to have helped boost 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 Oil, Gas & Consumable Fuels industry. The net income increased by 101.8% when compared to the same quarter one year prior, rising from -$15.28 million to $0.28 million.
- Net operating cash flow has increased to $20.59 million or 45.98% when compared to the same quarter last year. In addition, LRR ENERGY LP has also vastly surpassed the industry average cash flow growth rate of -44.35%.
- The gross profit margin for LRR ENERGY LP is rather high; currently it is at 66.51%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.12% trails the industry average.
- LRR ENERGY LP reported significant earnings per share improvement 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, LRR ENERGY LP reported lower earnings of $0.00 versus $2.42 in the prior year. This year, the market expects an increase in earnings to $0.81 from $0.00.
- You can view the full LRR Energy Ratings Report.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- COMPASS DIVERSIFIED HOLDINGS 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, COMPASS DIVERSIFIED HOLDINGS continued to lose money by earning -$0.05 versus -$0.81 in the prior year. This year, the market expects an improvement in earnings ($1.61 versus -$0.05).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Financial Services industry. The net income increased by 2005.2% when compared to the same quarter one year prior, rising from $3.49 million to $73.39 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 13.4%. Since the same quarter one year prior, revenues rose by 10.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- You can view the full Compass Diversified Holdings Shares of Bene Ratings Report.
- Our dividend calendar.