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." HCP (NYSE: HCP) shares currently have a dividend yield of 5.60%. HCP, Inc. is an independent hybrid real estate investment trust. The fund invests in real estate markets of the United States. The company has a P/E ratio of 20.11. The average volume for HCP has been 2,904,000 shares per day over the past 30 days. HCP has a market cap of $17.8 billion and is part of the real estate industry. Shares are up 6.3% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates HCP as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, compelling growth in net income, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- HCP's revenue growth has slightly outpaced the industry average of 9.7%. Since the same quarter one year prior, revenues rose by 15.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- HCP INC has improved earnings per share by 9.1% 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, HCP INC increased its bottom line by earning $1.79 versus $1.27 in the prior year. This year, the market expects an improvement in earnings ($2.02 versus $1.79).
- 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 19.2% when compared to the same quarter one year prior, going from $196.11 million to $233.76 million.
- Net operating cash flow has increased to $272.08 million or 14.60% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -0.44%.
- The gross profit margin for HCP INC is rather high; currently it is at 59.33%. Regardless of HCP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HCP's net profit margin of 41.90% significantly outperformed against the industry.
- You can view the full HCP Ratings Report.
- SIX's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 4.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- 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. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, SIX FLAGS ENTERTAINMENT CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for SIX FLAGS ENTERTAINMENT CORP is rather high; currently it is at 66.10%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 23.86% is above that of the industry average.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- SIX FLAGS ENTERTAINMENT CORP's earnings per share declined by 43.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, SIX FLAGS ENTERTAINMENT CORP turned its bottom line around by earning $3.04 versus -$0.25 in the prior year. For the next year, the market is expecting a contraction of 71.4% in earnings ($0.87 versus $3.04).
- You can view the full Six Flags Entertainment Ratings Report.
- LEG's revenue growth trails the industry average of 26.3%. Since the same quarter one year prior, revenues slightly increased by 5.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.62, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.89 is somewhat weak and could be cause for future problems.
- LEGGETT & PLATT INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, LEGGETT & PLATT INC reported lower earnings of $1.29 versus $1.66 in the prior year. This year, the market expects an improvement in earnings ($1.70 versus $1.29).
- In its most recent trading session, LEG 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. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- 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 Household Durables industry. The net income has significantly decreased by 92.4% when compared to the same quarter one year ago, falling from $73.50 million to $5.60 million.
- You can view the full Leggett & Platt Ratings Report.
- Our dividend calendar.