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 "Sell."Equity Residential (NYSE: EQR) shares currently have a dividend yield of 4.40%. Equity Residential, a real estate investment trust (REIT), engages in the acquisition, development, and management of multifamily properties in the United States. The average volume for Equity Residential has been 2,195,100 shares per day over the past 30 days. Equity Residential has a market cap of $21.4 billion and is part of the real estate industry. Shares are up 14.5% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Equity Residential as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, disappointing return on equity and feeble growth in its earnings per share. Highlights from the ratings report include:
- 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 69.8% when compared to the same quarter one year ago, falling from $367.02 million to $110.98 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, EQUITY RESIDENTIAL's return on equity significantly trails that of both the industry average and the S&P 500.
- EQUITY RESIDENTIAL 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 reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, EQUITY RESIDENTIAL swung to a loss, reporting -$0.46 versus $0.57 in the prior year. This year, the market expects an improvement in earnings ($1.38 versus -$0.46).
- In its most recent trading session, EQR 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. Regardless of the rise in share value over the previous year, we feel that the risks involved in investing in this stock do not compensate for any future upside potential.
- 35.00% is the gross profit margin for EQUITY RESIDENTIAL which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 17.36% trails the industry average.
- You can view the full Equity Residential Ratings Report.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PENN WEST PETROLEUM LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- PWE has underperformed the S&P 500 Index, declining 17.14% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- PENN WEST PETROLEUM LTD reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, PENN WEST PETROLEUM LTD reported lower earnings of $0.37 versus $1.37 in the prior year.
- The current debt-to-equity ratio, 0.35, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.48 is very weak and demonstrates a lack of ability to pay short-term obligations.
- The gross profit margin for PENN WEST PETROLEUM LTD is rather high; currently it is at 60.85%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 4.57% trails the industry average.
- You can view the full Penn West Petroleum Ratings Report.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NORDIC AMERICAN TANKERS LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$18.25 million or 180.70% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The gross profit margin for NORDIC AMERICAN TANKERS LTD is currently extremely low, coming in at 8.15%. Regardless of NAT's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, NAT's net profit margin of -33.75% significantly underperformed when compared to the industry average.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- NORDIC AMERICAN TANKERS LTD has improved earnings per share by 49.2% 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, NORDIC AMERICAN TANKERS LTD reported poor results of -$1.67 versus -$1.38 in the prior year. This year, the market expects an improvement in earnings (-$0.46 versus -$1.67).
- You can view the full Nordic American Tankers Ratings Report.
- Our dividend calendar.