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 5.80%. 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 19.22. The average volume for HCP has been 2,984,800 shares per day over the past 30 days. HCP has a market cap of $17.3 billion and is part of the real estate industry. Shares are up 4.3% 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 growth in earnings per share, compelling growth in net income, revenue growth, expanding profit margins and notable return on equity. 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 INC has improved earnings per share by 10.9% 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 $1.97 versus $1.80 in the prior year. This year, the market expects an improvement in earnings ($2.05 versus $1.97).
- 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 21.6% when compared to the same quarter one year prior, going from $241.03 million to $293.10 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 6.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for HCP INC is rather high; currently it is at 63.37%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 53.24% significantly outperformed against the industry average.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, HCP INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full HCP Ratings Report.