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." Linn Energy (NASDAQ: LINE) shares currently have a dividend yield of 10.10%. Linn Energy, LLC, an independent oil and natural gas company, acquires and develops oil and natural gas properties. The company's properties are located in Rockies, the Mid-Continent, the Hugoton Basin, California, the Permian Basin, Michigan, Illinois, and East Texas in the United States. The average volume for Linn Energy has been 1,620,200 shares per day over the past 30 days. Linn Energy has a market cap of $9.5 billion and is part of the energy industry. Shares are down 6.2% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Linn Energy as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year. Highlights from the ratings report include:
- LINE's very impressive revenue growth greatly exceeded the industry average of 0.2%. Since the same quarter one year prior, revenues leaped by 98.9%. 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 61.7% when compared to the same quarter one year prior, rising from -$221.89 million to -$85.00 million.
- LINN ENERGY LLC 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, LINN ENERGY LLC reported poor results of -$2.78 versus -$1.86 in the prior year. This year, the market expects an improvement in earnings ($1.60 versus -$2.78).
- LINE has underperformed the S&P 500 Index, declining 24.81% 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.
- You can view the full Linn Energy Ratings Report.
- HERSHA HOSPITALITY TRUST has improved earnings per share by 42.9% 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, HERSHA HOSPITALITY TRUST turned its bottom line around by earning $0.02 versus -$0.03 in the prior year. This year, the market expects an improvement in earnings ($0.07 versus $0.02).
- 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 5.4%. 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 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 5.8% when compared to the same quarter one year prior, going from -$7.00 million to -$6.60 million.
- The gross profit margin for HERSHA HOSPITALITY TRUST is currently extremely low, coming in at 4.95%. Regardless of HT's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, HT's net profit margin of -8.21% significantly underperformed when compared to the industry average.
- In its most recent trading session, HT 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, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full Hersha Hospitality Ratings Report.
- The revenue growth came in higher than the industry average of 3.2%. Since the same quarter one year prior, revenues rose by 23.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for VECTOR GROUP LTD is rather high; currently it is at 55.89%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 34.95% significantly outperformed against the industry average.
- VECTOR GROUP LTD reported significant earnings per share improvement 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. During the past fiscal year, VECTOR GROUP LTD increased its bottom line by earning $0.33 versus $0.29 in the prior year.
- Powered by its strong earnings growth of 357.61% and other important driving factors, this stock has surged by 44.07% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- You can view the full Vector Group Ratings Report.
- Our dividend calendar.