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."Preferred Apartment Communities (AMEX: APTS) shares currently have a dividend yield of 7.90%. 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 61,000 shares per day over the past 30 days. Preferred Apartment Communities has a market cap of $124.0 million and is part of the real estate industry. Shares are up 0.8% year-to-date as of the close of trading on Friday. 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 8.7%. Since the same quarter one year prior, revenues leaped by 474.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for PREFERRED APARTMENT CMNTYS is rather high; currently it is at 60.26%. It has increased significantly from the same period last 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 -$0.17 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 11.67% 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 revenue growth came in higher than the industry average of 7.5%. Since the same quarter one year prior, revenues slightly increased by 6.1%. 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.
- In its most recent trading session, MMLP 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, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- MARTIN MIDSTREAM PARTNERS LP 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 two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, MARTIN MIDSTREAM PARTNERS LP swung to a loss, reporting -$0.49 versus $1.33 in the prior year. This year, the market expects an improvement in earnings ($1.53 versus -$0.49).
- 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 Oil, Gas & Consumable Fuels industry and the overall market, MARTIN MIDSTREAM PARTNERS LP'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 when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 642.0% when compared to the same quarter one year ago, falling from $7.24 million to -$39.26 million.
- You can view the full Martin Midstream Partners Ratings Report.
- SMTP's revenue growth has slightly outpaced the industry average of 11.7%. 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 has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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.
- 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.
- The net income growth from the same quarter one year ago has significantly 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.