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 "Sell." Washington REIT (NYSE: WRE) shares currently have a dividend yield of 5.00%. Washington Real Estate Investment Trust is an equity real estate investment trust (REIT). The company engages in the ownership, operation, and development of real properties. The firm invests in real estate markets of the greater Washington D.C. metro region. The company has a P/E ratio of 121.20. The average volume for Washington REIT has been 426,100 shares per day over the past 30 days. Washington REIT has a market cap of $1.6 billion and is part of the real estate industry. Shares are up 3.9% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Washington REIT as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow, poor profit margins and feeble growth in its earnings per share. Highlights from the ratings report include:
- 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, WASHINGTON REIT underperformed against that of the industry average and is significantly less than that of the S&P 500.
- Net operating cash flow has decreased to $19.83 million or 48.26% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The gross profit margin for WASHINGTON REIT is rather low; currently it is at 21.02%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 28.17% is above that of the industry average.
- WASHINGTON REIT 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, WASHINGTON REIT reported lower earnings of $0.00 versus $0.12 in the prior year. This year, the market expects an increase in earnings to $0.15 from $0.00.
- Compared to where it was trading one year ago, WRE is down 15.74% to its most recent closing price of 24.15. Looking ahead, our view is that this stock still does not have good upside potential and may even suffer further declines.
- You can view the full Washington REIT Ratings Report.