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 "Hold." Corporate Office Properties (NYSE: OFC) shares currently have a dividend yield of 4.50%. Corporate Office Properties Trust, a real estate investment trust (REIT), engages in the acquisition, development, ownership, management, and leasing of suburban office properties. The company has a P/E ratio of 822.00. The average volume for Corporate Office Properties has been 606,700 shares per day over the past 30 days. Corporate Office Properties has a market cap of $2.2 billion and is part of the real estate industry. Shares are up 3.4% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Corporate Office Properties as a hold. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, compelling growth in net income and revenue growth. However, as a counter to these strengths, we find that the company's profit margins have been poor overall. Highlights from the ratings report include:
- CORP OFFICE PPTYS TR INC 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 year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, CORP OFFICE PPTYS TR INC continued to lose money by earning -$0.25 versus -$1.32 in the prior year. This year, the market expects an improvement in earnings ($0.81 versus -$0.25).
- 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 84.5% when compared to the same quarter one year prior, rising from -$19.16 million to -$2.96 million.
- Compared to its price level of one year ago, OFC is down 6.68% to its most recent closing price of 24.87. Looking ahead, our view is that this company's fundamentals will not have much impact either way, allowing the stock to generally move up or down based on the push and pull of the broad market.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, CORP OFFICE PPTYS TR INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for CORP OFFICE PPTYS TR INC is rather low; currently it is at 15.70%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, OFC's net profit margin of -2.17% significantly underperformed when compared to the industry average.
- You can view the full Corporate Office Properties Ratings Report.
- CPWR has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.05, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for COMPUWARE CORP is currently very high, coming in at 71.03%. Regardless of CPWR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CPWR's net profit margin of 9.98% is significantly lower than the industry average.
- Net operating cash flow has declined marginally to $32.16 million or 1.48% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, COMPUWARE CORP has marginally lower results.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Software industry and the overall market, COMPUWARE CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Compuware Corporation Ratings Report.
- LINE's very impressive revenue growth greatly exceeded the industry average of 1.4%. Since the same quarter one year prior, revenues leaped by 923.3%. 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 93.0% when compared to the same quarter one year prior, rising from -$430.01 million to -$30.06 million.
- LINN ENERGY LLC 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, LINN ENERGY LLC swung to a loss, reporting -$1.86 versus $2.21 in the prior year. This year, the market expects an improvement in earnings ($1.07 versus -$1.86).
- LINE has underperformed the S&P 500 Index, declining 14.08% 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.
- Currently the debt-to-equity ratio of 1.61 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.46, which clearly demonstrates the inability to cover short-term cash needs.
- You can view the full Linn Energy Ratings Report.
- Our dividend calendar.