3 Hold-Rated Dividend Stocks: LGCY, RSO, RAS

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."

Legacy Reserves

Dividend Yield: 9.40%

Legacy Reserves (NASDAQ: LGCY) shares currently have a dividend yield of 9.40%.

Legacy Reserves LP owns and operates oil and natural gas properties in the United States.

The average volume for Legacy Reserves has been 193,500 shares per day over the past 30 days. Legacy Reserves has a market cap of $1.5 billion and is part of the energy industry. Shares are down 10.7% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Legacy Reserves as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 0.2%. Since the same quarter one year prior, revenues rose by 33.5%. 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 significantly increased by 96.18% to $39.63 million when compared to the same quarter last year. In addition, LEGACY RESERVES LP has also vastly surpassed the industry average cash flow growth rate of 5.61%.
  • LEGACY RESERVES 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, LEGACY RESERVES LP swung to a loss, reporting -$0.62 versus $1.43 in the prior year. This year, the market expects an improvement in earnings ($1.15 versus -$0.62).
  • 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, LEGACY RESERVES LP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for LEGACY RESERVES LP is currently extremely low, coming in at 11.32%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -37.04% is significantly below that of the industry average.

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Resource Capital

Dividend Yield: 14.60%

Resource Capital (NYSE: RSO) shares currently have a dividend yield of 14.60%.

Resource Capital Corp., a diversified real estate investment trust, primarily focuses on originating, holding, and managing commercial mortgage loans and other commercial real estate-related debt and equity investments in the United States. The company has a P/E ratio of 16.61.

The average volume for Resource Capital has been 1,078,200 shares per day over the past 30 days. Resource Capital has a market cap of $704.6 million and is part of the real estate industry. Shares are down 7.2% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Resource Capital as a hold. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • Net operating cash flow has significantly increased by 111.30% to $1.59 million when compared to the same quarter last year. In addition, RESOURCE CAPITAL CORP has also vastly surpassed the industry average cash flow growth rate of -70.87%.
  • The gross profit margin for RESOURCE CAPITAL CORP is rather high; currently it is at 53.51%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, RSO's net profit margin of 2.78% significantly trails the industry average.
  • 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 92.3% when compared to the same quarter one year ago, falling from $15.05 million to $1.17 million.
  • 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, RESOURCE CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Rait Financial

Dividend Yield: 8.50%

Rait Financial (NYSE: RAS) shares currently have a dividend yield of 8.50%.

RAIT Financial Trust operates as a self-managed and self-advised real estate investment trust (REIT). The company, through its subsidiaries, invests in, manages, and services real estate-related assets with a focus on commercial real estate.

The average volume for Rait Financial has been 791,800 shares per day over the past 30 days. Rait Financial has a market cap of $657.3 million and is part of the real estate industry. Shares are down 9.4% year-to-date as of the close of trading on Monday.

TheStreet Ratings rates Rait Financial as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • RAS's revenue growth has slightly outpaced the industry average of 8.3%. Since the same quarter one year prior, revenues rose by 15.0%. 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 significantly increased by 253.63% to $24.97 million when compared to the same quarter last year. In addition, RAIT FINANCIAL TRUST has also vastly surpassed the industry average cash flow growth rate of -70.87%.
  • RAIT FINANCIAL 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. 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, RAIT FINANCIAL TRUST reported poor results of -$4.58 versus -$3.92 in the prior year. This year, the market expects an improvement in earnings ($1.14 versus -$4.58).
  • 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 179.2% when compared to the same quarter one year ago, falling from -$46.09 million to -$128.71 million.
  • 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 Real Estate Investment Trusts (REITs) industry and the overall market, RAIT FINANCIAL TRUST's return on equity significantly trails that of both the industry average and the S&P 500.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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