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.