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." Liberty Property (NYSE: LPT) shares currently have a dividend yield of 5.10%. Liberty Property Trust is a publicly owned real estate investment holding trust. Through its subsidiary, it provides leasing, property management, development, acquisition, and other tenant-related services for a portfolio of industrial and office properties. The company has a P/E ratio of 55.16. The average volume for Liberty Property has been 715,900 shares per day over the past 30 days. Liberty Property has a market cap of $5.5 billion and is part of the real estate industry. Shares are up 10.8% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Liberty Property as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. 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 34.9%. 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 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 0.9% when compared to the same quarter one year prior, going from $71.24 million to $71.90 million.
- LIBERTY PROPERTY TRUST's earnings per share declined by 10.5% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, LIBERTY PROPERTY TRUST reported lower earnings of $0.67 versus $0.76 in the prior year. This year, the market expects an improvement in earnings ($1.02 versus $0.67).
- In its most recent trading session, LPT 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. 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.
- The gross profit margin for LIBERTY PROPERTY TRUST is currently lower than what is desirable, coming in at 32.38%. It has decreased from the same quarter the previous year. Despite the weak results of the gross profit margin, the net profit margin of 35.19% has significantly outperformed against the industry average.
- You can view the full Liberty Property Ratings Report.