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." Sabra Health Care REIT (NASDAQ: SBRA) shares currently have a dividend yield of 5.30%. Sabra Health Care REIT, Inc. operates as a real estate investment trust in the United States. The company, through its subsidiaries, owns and invests in real estate properties for the healthcare industry. The company has a P/E ratio of 156.67. The average volume for Sabra Health Care REIT has been 516,300 shares per day over the past 30 days. Sabra Health Care REIT has a market cap of $1.3 billion and is part of the real estate industry. Shares are up 8.1% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Sabra Health Care REIT as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow. 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 27.6%. 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 gross profit margin for SABRA HEALTH CARE REIT INC is rather high; currently it is at 62.78%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -17.87% is in-line with the industry average.
- SABRA HEALTH CARE REIT 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. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SABRA HEALTH CARE REIT INC increased its bottom line by earning $0.67 versus $0.53 in the prior year. This year, the market expects an improvement in earnings ($0.87 versus $0.67).
- 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 176.4% when compared to the same quarter one year ago, falling from $9.56 million to -$7.30 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, SABRA HEALTH CARE REIT INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Sabra Health Care REIT Ratings Report.