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 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 "Hold."Telefonica Brasil S.A (NYSE: VIV) shares currently have a dividend yield of 7.50%. Telefonica Brasil S.A. provides fixed-line telecommunications services to residential and commercial customers in Brazil. The company has a P/E ratio of 6.48. The average volume for Telefonica Brasil S.A has been 2,288,200 shares per day over the past 30 days. Telefonica Brasil S.A has a market cap of $23.3 billion and is part of the telecommunications industry. Shares are up 5.6% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Telefonica Brasil S.A as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- VIV's debt-to-equity ratio is very low at 0.20 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.07, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for TELEFONICA BRASIL SA is rather high; currently it is at 56.70%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 14.45% trails the industry average.
- 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. When compared to other companies in the Diversified Telecommunication Services industry and the overall market, TELEFONICA BRASIL SA's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $986.41 million or 29.02% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Telefonica Brasil S.A Ratings Report.
- The revenue growth came in higher than the industry average of 6.9%. Since the same quarter one year prior, revenues rose by 29.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- PARKWAY PROPERTIES INC 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, PARKWAY PROPERTIES INC continued to lose money by earning -$0.58 versus -$1.57 in the prior year. This year, the market expects an improvement in earnings ($0.07 versus -$0.58).
- The gross profit margin for PARKWAY PROPERTIES INC is currently extremely low, coming in at 8.71%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, PKY's net profit margin of -10.86% significantly underperformed when compared to the industry average.
- Net operating cash flow has significantly decreased to -$9.08 million or 190.58% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Parkway Properties Ratings Report.
- HCN's very impressive revenue growth greatly exceeded the industry average of 6.9%. Since the same quarter one year prior, revenues leaped by 57.7%. 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 increased to $362.59 million or 42.38% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 10.91%.
- HEALTH CARE REIT INC 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 two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, HEALTH CARE REIT INC reported lower earnings of $0.09 versus $0.46 in the prior year. This year, the market expects an improvement in earnings ($0.63 versus $0.09).
- The gross profit margin for HEALTH CARE REIT INC is rather low; currently it is at 20.60%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 3.57% significantly trails the industry average.
- The share price of HEALTH CARE REIT INC has not done very well: it is down 12.48% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- You can view the full Health Care REIT Ratings Report.
- Our dividend calendar.