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." Lexington Realty (NYSE: LXP) shares currently have a dividend yield of 5.70%. Lexington Corporate Properties Trust operates as a self-managed and self-administered real estate investment trust (REIT). The company acquires, owns, and manages a portfolio of office, industrial, and retail properties net-leased to corporate tenants in the United States. The average volume for Lexington Realty has been 1,876,300 shares per day over the past 30 days. Lexington Realty has a market cap of $2.7 billion and is part of the real estate industry. Shares are up 13.8% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Lexington Realty as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, poor profit margins and a generally disappointing performance in the stock itself. 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 21.2%. 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 S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 133.8% when compared to the same quarter one year prior, rising from -$2.62 million to $0.89 million.
- Net operating cash flow has slightly increased to $59.94 million or 4.91% when compared to the same quarter last year. Despite an increase in cash flow, LEXINGTON REALTY TRUST's cash flow growth rate is still lower than the industry average growth rate of 29.99%.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, LEXINGTON REALTY TRUST's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for LEXINGTON REALTY TRUST 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 0.78% significantly trails the industry average.
- You can view the full Lexington Realty Ratings Report.