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."Hersha Hospitality (NYSE: HT) shares currently have a dividend yield of 4.20%. Operates as a Maryland REIT that focuses primarily on owning and operating high quality, upscale and mid-scale limited service and extended-stay hotels. Its portfolio consisted of 31 wholly-owned limited and full service properties and joint venture investments in 16 hotels as of Dec. 31, 2005. The company has a P/E ratio of 296.00. The average volume for Hersha Hospitality has been 2,199,500 shares per day over the past 30 days. Hersha Hospitality has a market cap of $1.1 billion and is part of the real estate industry. Shares are up 3.4% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Hersha Hospitality as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, weak operating cash flow and poor profit margins. Highlights from the ratings report include:
- HT's revenue growth has slightly outpaced the industry average of 6.8%. Since the same quarter one year prior, revenues slightly increased by 9.8%. 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.
- 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 434.7% when compared to the same quarter one year prior, rising from $6.78 million to $36.28 million.
- HERSHA HOSPITALITY TRUST 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. 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, HERSHA HOSPITALITY TRUST turned its bottom line around by earning $0.02 versus -$0.03 in the prior year. This year, the market expects an improvement in earnings ($0.07 versus $0.02).
- Net operating cash flow has decreased to $20.07 million or 11.81% 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.
- In its most recent trading session, HT 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, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full Hersha Hospitality Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 6.8%. 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 11.04%.
- HME has underperformed the S&P 500 Index, declining 7.19% 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.
- CPWR 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. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.05, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for COMPUWARE CORP is currently very high, coming in at 71.03%. Regardless of CPWR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CPWR's net profit margin of 9.98% is significantly lower than the industry average.
- 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 Software industry and the overall market, COMPUWARE CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- 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 Software industry. The net income has decreased by 1.3% when compared to the same quarter one year ago, dropping from $25.34 million to $25.02 million.
- You can view the full Compuware Corporation Ratings Report.
- Our dividend calendar.