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." Select Income REIT (NYSE: SIR) shares currently have a dividend yield of 6.70%. Select Income REIT is a real estate investment trust managed by Reit Management & Research LLC. The firm invests in the real estate markets of United States with a focus on Hawaii. The fund seeks to invest in office and industrial properties. Select Income REIT is domiciled in United States. The company has a P/E ratio of 14.29. The average volume for Select Income REIT has been 425,300 shares per day over the past 30 days. Select Income REIT has a market cap of $1.4 billion and is part of the real estate industry. Shares are up 7.8% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Select Income REIT 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, expanding profit margins and increase in net income. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 10.3%. Since the same quarter one year prior, revenues rose by 20.5%. 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 increased to $31.30 million or 48.11% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 29.62%.
- The gross profit margin for SELECT INCOME REIT is rather high; currently it is at 59.35%. Regardless of SIR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SIR's net profit margin of 47.34% significantly outperformed against the industry.
- 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 10.7% when compared to the same quarter one year prior, going from $22.63 million to $25.06 million.
- You can view the full Select Income REIT Ratings Report.
- The revenue growth greatly exceeded the industry average of 3.0%. Since the same quarter one year prior, revenues rose by 37.2%. 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.
- Net operating cash flow has increased to $1,074.00 million or 43.96% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 17.46%.
- 40.55% is the gross profit margin for KINDER MORGAN ENERGY -LP which we consider to be strong. Regardless of KMP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KMP's net profit margin of 20.42% significantly outperformed against the industry.
- The change in net income from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has decreased by 4.7% when compared to the same quarter one year ago, dropping from $783.00 million to $746.00 million.
- KINDER MORGAN ENERGY -LP's earnings per share declined by 30.9% in the most recent quarter compared to 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, KINDER MORGAN ENERGY -LP increased its bottom line by earning $3.80 versus $1.64 in the prior year. For the next year, the market is expecting a contraction of 30.9% in earnings ($2.63 versus $3.80).
- You can view the full Kinder Morgan Energy Partners Ratings Report.
- T's revenue growth has slightly outpaced the industry average of 3.3%. Since the same quarter one year prior, revenues slightly increased by 3.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has slightly increased to $8,799.00 million or 7.31% when compared to the same quarter last year. In addition, AT&T INC has also modestly surpassed the industry average cash flow growth rate of 1.40%.
- The debt-to-equity ratio is somewhat low, currently at 0.88, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.42 is very weak and demonstrates a lack of ability to pay short-term obligations.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, AT&T INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full AT&T Ratings Report.
- Our dividend calendar.