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 "Buy."Starwood Property (NYSE: STWD) shares currently have a dividend yield of 8.10%. Starwood Property Trust, Inc. originates, acquires, finances, and manages commercial mortgage loans, other commercial real estate debt investments, commercial mortgage-backed securities, and other commercial real estate-related debt investments in the United States and Europe. The company has a P/E ratio of 13.09. The average volume for Starwood Property has been 2,572,700 shares per day over the past 30 days. Starwood Property has a market cap of $4.6 billion and is part of the real estate industry. Shares are down 16.4% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Starwood Property as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share, compelling growth in net income, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- STWD's very impressive revenue growth greatly exceeded the industry average of 6.7%. Since the same quarter one year prior, revenues leaped by 110.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- STARWOOD PROPERTY TRUST INC has improved earnings per share by 14.3% 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. During the past fiscal year, STARWOOD PROPERTY TRUST INC increased its bottom line by earning $1.82 versus $1.78 in the prior year. This year, the market expects an improvement in earnings ($2.15 versus $1.82).
- 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 68.6% when compared to the same quarter one year prior, rising from $56.33 million to $94.97 million.
- Net operating cash flow has significantly increased by 1662.19% to $601.46 million when compared to the same quarter last year. In addition, STARWOOD PROPERTY TRUST INC has also vastly surpassed the industry average cash flow growth rate of 11.11%.
- 45.34% is the gross profit margin for STARWOOD PROPERTY TRUST INC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, STWD's net profit margin of 49.97% significantly outperformed against the industry.
- You can view the full Starwood Property Ratings Report.
- ETR's revenue growth has slightly outpaced the industry average of 3.1%. Since the same quarter one year prior, revenues rose by 10.5%. 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 $989.76 million or 37.37% when compared to the same quarter last year. Despite an increase in cash flow, ENTERGY CORP's average is still marginally south of the industry average growth rate of 42.94%.
- ENTERGY CORP 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 suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, ENTERGY CORP reported lower earnings of $3.98 versus $4.75 in the prior year. This year, the market expects an improvement in earnings ($5.40 versus $3.98).
- In its most recent trading session, ETR 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. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- 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 Electric Utilities industry. The net income has significantly decreased by 49.9% when compared to the same quarter one year ago, falling from $301.85 million to $151.35 million.
- You can view the full Entergy Ratings Report.
- The revenue growth came in higher than the industry average of 7.6%. Since the same quarter one year prior, revenues slightly increased by 9.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 25.49% and other important driving factors, this stock has surged by 54.41% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, ENLK should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The net income growth from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income increased by 27.8% when compared to the same quarter one year prior, rising from -$24.54 million to -$17.73 million.
- ENLINK MIDSTREAM PARTNERS LP has improved earnings per share by 25.5% 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, ENLINK MIDSTREAM PARTNERS LP reported poor results of -$1.71 versus -$1.01 in the prior year. This year, the market expects an improvement in earnings ($0.32 versus -$1.71).
- ENLK's debt-to-equity ratio of 0.93 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.89 is weak.
- You can view the full EnLink Midstream Partners Ratings Report.
- Our dividend calendar.