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." Resource Capital (NYSE: RSO) shares currently have a dividend yield of 14.30%. Resource Capital Corp., a diversified real estate investment trust, primarily focuses on originating, holding, and managing commercial mortgage loans and other commercial real estate-related debt and equity investments in the United States. The company has a P/E ratio of 16.41. The average volume for Resource Capital has been 1,152,300 shares per day over the past 30 days. Resource Capital has a market cap of $720.9 million and is part of the real estate industry. Shares are down 6.6% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Resource Capital as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- 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 Real Estate Investment Trusts (REITs) industry average. The net income increased by 36.4% when compared to the same quarter one year prior, rising from $12.84 million to $17.52 million.
- RESOURCE CAPITAL CORP has improved earnings per share by 9.1% in the most recent quarter compared to 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, RESOURCE CAPITAL CORP reported lower earnings of $0.33 versus $0.72 in the prior year. This year, the market expects an improvement in earnings ($0.52 versus $0.33).
- 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, RESOURCE CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $19.17 million or 17.72% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Resource Capital Ratings Report.