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."Piedmont Office Realty (NYSE: PDM) shares currently have a dividend yield of 4.40%. Piedmont Office Realty Trust, Inc. engages in the acquisition and ownership of commercial real estate properties in the United States. Its property portfolio primarily consists of office and industrial buildings, warehouses, and manufacturing facilities. The company has a P/E ratio of 48.18. The average volume for Piedmont Office Realty has been 917,600 shares per day over the past 30 days. Piedmont Office Realty has a market cap of $2.8 billion and is part of the real estate industry. Shares are up 11.1% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Piedmont Office Realty as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including poor profit margins, weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- 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 105.2% when compared to the same quarter one year prior, rising from $14.44 million to $29.62 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 8.3%. Since the same quarter one year prior, revenues slightly increased by 4.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- PIEDMONT OFFICE REALTY TRUST has improved earnings per share by 12.5% 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, PIEDMONT OFFICE REALTY TRUST increased its bottom line by earning $0.44 versus $0.36 in the prior year. For the next year, the market is expecting a contraction of 29.5% in earnings ($0.31 versus $0.44).
- Net operating cash flow has decreased to $46.73 million or 42.05% when compared to the same quarter last year. Despite a decrease in cash flow PIEDMONT OFFICE REALTY TRUST is still fairing well by exceeding its industry average cash flow growth rate of -70.87%.
- The gross profit margin for PIEDMONT OFFICE REALTY TRUST is rather low; currently it is at 21.21%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 21.43% trails that of the industry average.
- You can view the full Piedmont Office Realty Ratings Report.
- SUN COMMUNITIES INC has improved earnings per share by 10.5% 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 year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, SUN COMMUNITIES INC increased its bottom line by earning $0.32 versus $0.20 in the prior year. This year, the market expects an improvement in earnings ($0.46 versus $0.32).
- The net income growth from the same quarter one year ago has significantly exceeded that of the Real Estate Investment Trusts (REITs) industry average, but is less than that of the S&P 500. The net income increased by 29.0% when compared to the same quarter one year prior, rising from $7.26 million to $9.36 million.
- The gross profit margin for SUN COMMUNITIES INC is currently lower than what is desirable, coming in at 26.28%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 8.38% significantly trails the industry average.
- SUI has underperformed the S&P 500 Index, declining 7.06% from its price level of one year ago. 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 Sun Communities Ratings Report.
- The revenue growth came in higher than the industry average of 7.9%. Since the same quarter one year prior, revenues rose by 10.2%. 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.
- The gross profit margin for ARES CAPITAL CORP is rather high; currently it is at 69.04%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 57.27% significantly outperformed against the industry average.
- 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 Capital Markets industry and the overall market on the basis of return on equity, ARES CAPITAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of 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 Capital Markets industry. The net income has decreased by 23.6% when compared to the same quarter one year ago, dropping from $175.14 million to $133.88 million.
- Net operating cash flow has significantly decreased to -$191.83 million or 167.23% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Ares Capital Corporation Ratings Report.
- Our dividend calendar.