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 "Hold."American Realty Capital Properties (NASDAQ: ARCP) shares currently have a dividend yield of 7.10%. American Realty Capital Properties, Inc. owns and acquires single tenant, freestanding commercial real estate that is net leased on a medium-term basis, primarily to investment grade credit rated and other creditworthy tenants. The company principally invests in retail and office properties. The average volume for American Realty Capital Properties has been 7,480,300 shares per day over the past 30 days. American Realty Capital Properties has a market cap of $2.6 billion and is part of the real estate industry. Shares are up 9.8% year-to-date as of the close of trading on Friday. TheStreet Ratings rates American Realty Capital Properties as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and notable return on equity. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- ARCP's very impressive revenue growth greatly exceeded the industry average of 6.8%. Since the same quarter one year prior, revenues leaped by 223.6%. 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.
- Net operating cash flow has significantly increased by 622.25% to $16.29 million when compared to the same quarter last year. In addition, AMERICAN RLTY CAP PPTY INC has also vastly surpassed the industry average cash flow growth rate of -76.73%.
- The gross profit margin for AMERICAN RLTY CAP PPTY INC is currently extremely low, coming in at 5.92%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, ARCP's net profit margin of -97.00% significantly underperformed when compared to the industry average.
- 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 365.4% when compared to the same quarter one year ago, falling from -$12.69 million to -$59.06 million.
- You can view the full American Realty Capital Properties Ratings Report.
- 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. In comparison to the other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ARMOUR RESIDENTIAL REIT INC's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- ARR, with its very weak revenue results, has greatly underperformed against the industry average of 6.8%. Since the same quarter one year prior, revenues plummeted by 216.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Net operating cash flow has decreased to $86.27 million or 18.52% when compared to the same quarter last year. Despite a decrease in cash flow of 18.52%, ARMOUR RESIDENTIAL REIT INC is still significantly exceeding the industry average of -76.73%.
- 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 518.5% when compared to the same quarter one year ago, falling from $54.94 million to -$229.94 million.
- You can view the full ARMOUR Residential REIT Ratings Report.
- 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 450.3% when compared to the same quarter one year prior, rising from -$21.96 million to $76.93 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 6.8%. Since the same quarter one year prior, revenues slightly increased by 2.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- DUKE REALTY CORP 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, DUKE REALTY CORP turned its bottom line around by earning $0.06 versus -$0.51 in the prior year. For the next year, the market is expecting a contraction of 491.7% in earnings (-$0.24 versus $0.06).
- The gross profit margin for DUKE REALTY CORP is rather low; currently it is at 18.21%. Regardless of DRE's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, DRE's net profit margin of 27.77% compares favorably to the industry average.
- In its most recent trading session, DRE 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. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- You can view the full Duke Realty Ratings Report.
- Our dividend calendar.