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." Hospitality Properties (NYSE: HPT) shares currently have a dividend yield of 6.50%. Hospitality Properties Trust, a real estate investment trust (REIT), engages in buying, owning, and leasing hotels. The company has a P/E ratio of 37.45. The average volume for Hospitality Properties has been 811,100 shares per day over the past 30 days. Hospitality Properties has a market cap of $4.5 billion and is part of the real estate industry. Shares are up 13.5% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Hospitality Properties as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels, good cash flow from operations, increase in net income and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 8.3%. Since the same quarter one year prior, revenues rose by 19.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- 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 23.0% when compared to the same quarter one year prior, going from $26.63 million to $32.75 million.
- Net operating cash flow has increased to $125.87 million or 26.82% when compared to the same quarter last year. In addition, HOSPITALITY PROPERTIES TRUST has also vastly surpassed the industry average cash flow growth rate of -70.87%.
- HOSPITALITY PROPERTIES TRUST has improved earnings per share by 26.7% 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, HOSPITALITY PROPERTIES TRUST reported lower earnings of $0.73 versus $0.84 in the prior year. This year, the market expects an improvement in earnings ($1.01 versus $0.73).
- You can view the full Hospitality Properties Ratings Report.