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 "Buy."Select Income REIT (NYSE: SIR) shares currently have a dividend yield of 6.60%. 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 14.51. The average volume for Select Income REIT has been 483,400 shares per day over the past 30 days. Select Income REIT has a market cap of $1.5 billion and is part of the real estate industry. Shares are up 8.4% year-to-date as of the close of trading on Tuesday. 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 no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook. 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 30.28%.
- 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.
- HLSS's very impressive revenue growth greatly exceeded the industry average of 0.1%. Since the same quarter one year prior, revenues leaped by 89.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- HOME LOAN SERVICING SOLTNS has improved earnings per share by 38.6% 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. During the past fiscal year, HOME LOAN SERVICING SOLTNS increased its bottom line by earning $1.97 versus $1.23 in the prior year. This year, the market expects an improvement in earnings ($2.28 versus $1.97).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Thrifts & Mortgage Finance industry. The net income increased by 76.2% when compared to the same quarter one year prior, rising from $24.79 million to $43.67 million.
- The gross profit margin for HOME LOAN SERVICING SOLTNS is currently very high, coming in at 95.02%. Regardless of HLSS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HLSS's net profit margin of 51.11% significantly outperformed against the industry.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Thrifts & Mortgage Finance industry and the overall market on the basis of return on equity, HOME LOAN SERVICING SOLTNS has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full Home Loan Servicing Solutions Ratings Report.
- TCP's revenue growth has slightly outpaced the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 1.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for TC PIPELINES LP is currently very high, coming in at 79.31%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 65.51% significantly outperformed against the industry average.
- Net operating cash flow has significantly increased by 169.44% to $97.00 million when compared to the same quarter last year. In addition, TC PIPELINES LP has also vastly surpassed the industry average cash flow growth rate of 17.51%.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Oil, Gas & Consumable Fuels industry average. The net income increased by 32.5% when compared to the same quarter one year prior, rising from $43.00 million to $57.00 million.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full TC Pipelines Ratings Report.
- Our dividend calendar.