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."Home Properties (NYSE: HME) shares currently have a dividend yield of 4.90%. Home Properties, Inc. is an independent real estate investment trust. The firm invests in the real estate markets of the United States. It is engaged in the ownership, management, acquisition, rehabilitation and development of residential apartment communities. The company has a P/E ratio of 36.35. The average volume for Home Properties has been 387,500 shares per day over the past 30 days. Home Properties has a market cap of $3.4 billion and is part of the real estate industry. Shares are up 12% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Home Properties as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 3.4%. 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 $75.50 million or 7.86% when compared to the same quarter last year. Despite an increase in cash flow, HOME PROPERTIES INC's average is still marginally south of the industry average growth rate of 11.12%.
- HME has underperformed the S&P 500 Index, declining 5.45% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Real Estate Investment Trusts (REITs) industry. The net income has decreased by 18.4% when compared to the same quarter one year ago, dropping from $69.77 million to $56.92 million.
- You can view the full Home Properties 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 179.3% when compared to the same quarter one year prior, rising from -$26.21 million to $20.79 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 0.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has slightly increased to $37.26 million or 6.02% when compared to the same quarter last year. Despite an increase in cash flow, BRANDYWINE REALTY TRUST's average is still marginally south of the industry average growth rate of 11.12%.
- In its most recent trading session, BDN 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. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The gross profit margin for BRANDYWINE REALTY TRUST is rather low; currently it is at 20.50%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 14.93% trails that of the industry average.
- You can view the full Brandywine Realty Ratings Report.
- QSII has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, QSII has a quick ratio of 1.85, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for QUALITY SYSTEMS INC is rather high; currently it is at 59.79%. Regardless of QSII's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, QSII's net profit margin of -11.56% 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 Health Care Technology industry. The net income has significantly decreased by 180.6% when compared to the same quarter one year ago, falling from $15.63 million to -$12.59 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Health Care Technology industry and the overall market on the basis of return on equity, QUALITY SYSTEMS INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Quality Systems Ratings Report.
- Our dividend calendar.