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." Home Properties (NYSE: HME) shares currently have a dividend yield of 4.80%. Home Properties, Inc. is an independent real estate investment trust. The firm invests in the real estate markets of the United States. It is engaged in the ownership, management, acquisition, rehabilitation and development of residential apartment communities. The company has a P/E ratio of 36.35. The average volume for Home Properties has been 362,200 shares per day over the past 30 days. Home Properties has a market cap of $3.5 billion and is part of the real estate industry. Shares are up 13.1% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Home Properties as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 8.7%. 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.
- The gross profit margin for HOME PROPERTIES INC is currently lower than what is desirable, coming in at 34.33%. Regardless of HME's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, HME's net profit margin of 33.92% significantly outperformed against the industry.
- HME has underperformed the S&P 500 Index, declining 7.21% 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.
- The revenue growth greatly exceeded the industry average of 7.5%. Since the same quarter one year prior, revenues rose by 27.4%. Growth in the company's revenue appears to have helped boost the 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 Oil, Gas & Consumable Fuels industry. The net income increased by 78.9% when compared to the same quarter one year prior, rising from -$158.71 million to -$33.43 million.
- The gross profit margin for ENERPLUS CORP is rather high; currently it is at 54.64%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -8.46% is in-line with the industry average.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ENERPLUS CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite currently having a low debt-to-equity ratio of 0.53, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.35 is very low and demonstrates very weak liquidity.
- You can view the full Enerplus Ratings Report.
- HCN's very impressive revenue growth greatly exceeded the industry average of 8.7%. Since the same quarter one year prior, revenues leaped by 57.7%. 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 $362.59 million or 42.38% when compared to the same quarter last year. In addition, HEALTH CARE REIT INC has also vastly surpassed the industry average cash flow growth rate of -41.99%.
- HEALTH CARE REIT INC 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, HEALTH CARE REIT INC reported lower earnings of $0.09 versus $0.46 in the prior year. This year, the market expects an improvement in earnings ($0.64 versus $0.09).
- The gross profit margin for HEALTH CARE REIT INC is rather low; currently it is at 20.60%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 3.57% significantly trails the industry average.
- The share price of HEALTH CARE REIT INC has not done very well: it is down 15.57% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- You can view the full Health Care REIT Ratings Report.
- Our dividend calendar.