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." Preferred Apartment Communities (AMEX: APTS) shares currently have a dividend yield of 8.00%. Preferred Apartment Communities, Inc. is a real estate investment trust launched and managed by Preferred Apartment Advisors, LLC. The fund invests in real estate markets of the United States. It primarily acquires and operates multifamily apartment properties. The average volume for Preferred Apartment Communities has been 60,000 shares per day over the past 30 days. Preferred Apartment Communities has a market cap of $123.2 million and is part of the real estate industry. Shares are up 0.1% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Preferred Apartment Communities as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- APTS's very impressive revenue growth greatly exceeded the industry average of 6.8%. Since the same quarter one year prior, revenues leaped by 63.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for PREFERRED APARTMENT CMNTYS is rather high; currently it is at 60.25%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 26.60% is above that of the industry average.
- PREFERRED APARTMENT CMNTYS reported significant earnings per share improvement 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, PREFERRED APARTMENT CMNTYS reported poor results of -$2.00 versus -$0.11 in the prior year. This year, the market expects an improvement in earnings ($0.07 versus -$2.00).
- APTS has underperformed the S&P 500 Index, declining 16.91% 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.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, PREFERRED APARTMENT CMNTYS's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Preferred Apartment Communities Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 645.0% when compared to the same quarter one year prior, rising from $0.76 million to $5.63 million.
- The gross profit margin for SOLAR SENIOR CAPITAL LTD is currently very high, coming in at 72.43%. Regardless of SUNS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SUNS's net profit margin of 99.48% significantly outperformed against the industry.
- SOLAR SENIOR CAPITAL LTD reported significant earnings per share improvement 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, SOLAR SENIOR CAPITAL LTD reported lower earnings of $1.11 versus $1.46 in the prior year. This year, the market expects an improvement in earnings ($1.30 versus $1.11).
- 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 Capital Markets industry and the overall market, SOLAR SENIOR CAPITAL LTD's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$27.11 million or 235.03% 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 Solar Senior Capital Ratings Report.
- SMTP INC has improved earnings per share by 20.0% 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. During the past fiscal year, SMTP INC increased its bottom line by earning $0.42 versus $0.35 in the prior year.
- Despite its growing revenue, the company underperformed as compared with the industry average of 16.1%. Since the same quarter one year prior, revenues rose by 14.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The net income growth from the same quarter one year ago has exceeded that of the Internet Software & Services industry average, but is less than that of the S&P 500. The net income increased by 28.6% when compared to the same quarter one year prior, rising from $0.31 million to $0.40 million.
- You can view the full SMTP Ratings Report.
- Our dividend calendar.