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."Education Realty (NYSE: EDR) shares currently have a dividend yield of 4.20%. Education Realty Trust, Inc., a real estate investment trust (REIT), develops, acquires, owns, and manages student housing communities located near university campuses in the United States. The company has a P/E ratio of 94.64. The average volume for Education Realty has been 1,269,900 shares per day over the past 30 days. Education Realty has a market cap of $1.2 billion and is part of the real estate industry. Shares are up 19.3% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Education Realty as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and poor profit margins. Highlights from the ratings report include:
- EDR's revenue growth has slightly outpaced the industry average of 9.8%. Since the same quarter one year prior, revenues rose by 19.4%. 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 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 264.6% when compared to the same quarter one year prior, rising from $3.31 million to $12.07 million.
- EDUCATION REALTY TRUST 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. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, EDUCATION REALTY TRUST INC turned its bottom line around by earning $0.05 versus -$0.01 in the prior year. This year, the market expects earnings to be in line with last year ($0.05 versus $0.05).
- The gross profit margin for EDUCATION REALTY TRUST INC is rather low; currently it is at 15.31%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 22.10% trails that of the industry average.
- In its most recent trading session, EDR 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, 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 Education Realty Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.6%. Since the same quarter one year prior, revenues slightly increased by 3.2%. 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.
- 47.09% is the gross profit margin for ENSCO PLC which we consider to be strong. Regardless of ESV's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ESV's net profit margin of 24.64% significantly outperformed against the industry.
- Net operating cash flow has increased to $416.60 million or 21.70% when compared to the same quarter last year. Despite an increase in cash flow, ENSCO PLC's cash flow growth rate is still lower than the industry average growth rate of 48.22%.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, ESV has underperformed the S&P 500 Index, declining 17.41% 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 when compared to that of the S&P 500 and the Energy Equipment & Services industry. The net income has decreased by 7.8% when compared to the same quarter one year ago, dropping from $317.10 million to $292.50 million.
- You can view the full Ensco Ratings Report.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, EL PASO PIPELINE PARTNERS LP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- The gross profit margin for EL PASO PIPELINE PARTNERS LP is currently very high, coming in at 82.46%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 45.28% significantly outperformed against the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.1%. Since the same quarter one year prior, revenues slightly dropped by 1.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- EL PASO PIPELINE PARTNERS LP's earnings per share declined by 6.9% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, EL PASO PIPELINE PARTNERS LP reported lower earnings of $1.86 versus $2.15 in the prior year. For the next year, the market is expecting a contraction of 8.1% in earnings ($1.71 versus $1.86).
- The debt-to-equity ratio is very high at 2.15 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
- You can view the full El Paso Pipeline Partners Ratings Report.
- Our dividend calendar.