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 which could 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." Apollo Commercial Real Estate Finance (NYSE: ARI) shares currently have a dividend yield of 9.50%. Apollo Commercial Real Estate Finance, Inc. operates as a commercial real estate finance company in the United States. The company has a P/E ratio of 13.44. The average volume for Apollo Commercial Real Estate Finance has been 266,600 shares per day over the past 30 days. Apollo Commercial Real Estate Finance has a market cap of $628.5 million and is part of the real estate industry. Shares are up 4.2% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Apollo Commercial Real Estate Finance as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, compelling growth in net income and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- ARI's very impressive revenue growth greatly exceeded the industry average of 6.7%. Since the same quarter one year prior, revenues leaped by 55.9%. 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 Real Estate Investment Trusts (REITs) industry. The net income increased by 76.9% when compared to the same quarter one year prior, rising from $8.97 million to $15.86 million.
- The gross profit margin for APOLLO COMMERCIAL RE FIN INC is currently very high, coming in at 76.41%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 73.88% significantly outperformed against the industry average.
- APOLLO COMMERCIAL RE FIN INC has improved earnings per share by 42.3% 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, APOLLO COMMERCIAL RE FIN INC reported lower earnings of $1.26 versus $1.68 in the prior year. This year, the market expects an improvement in earnings ($1.68 versus $1.26).
- In its most recent trading session, ARI 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. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full Apollo Commercial Real Estate Finance Ratings Report.