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." National Retail Properties (NYSE: NNN) shares currently have a dividend yield of 4.50%. National Retail Properties, Inc. is a publicly owned equity real estate investment trust. The firm acquires, owns, manages, and develops retail properties in the United States. The company has a P/E ratio of 33.84. The average volume for National Retail Properties has been 1,038,400 shares per day over the past 30 days. National Retail Properties has a market cap of $4.4 billion and is part of the real estate industry. Shares are up 18.3% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates National Retail Properties as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, growth in earnings per share, expanding profit margins and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- NNN's revenue growth has slightly outpaced the industry average of 6.3%. Since the same quarter one year prior, revenues rose by 16.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has slightly increased to $59.34 million or 4.92% when compared to the same quarter last year. In addition, NATIONAL RETAIL PROPERTIES has also vastly surpassed the industry average cash flow growth rate of -54.21%.
- NATIONAL RETAIL PROPERTIES's earnings per share improvement from the most recent quarter was slightly positive. 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, NATIONAL RETAIL PROPERTIES increased its bottom line by earning $1.06 versus $1.03 in the prior year. This year, the market expects an improvement in earnings ($1.12 versus $1.06).
- The gross profit margin for NATIONAL RETAIL PROPERTIES is rather high; currently it is at 60.25%. Regardless of NNN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NNN's net profit margin of 42.65% significantly outperformed against the industry.
- The net income growth from the same quarter one year ago has exceeded that of the Real Estate Investment Trusts (REITs) industry average, but is less than that of the S&P 500. The net income increased by 8.8% when compared to the same quarter one year prior, going from $40.66 million to $44.24 million.
- You can view the full National Retail Properties Ratings Report.