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." Education Realty (NYSE: EDR) shares currently have a dividend yield of 4.10%. Education Realty Trust, Inc., a real estate investment trust (REIT), develops, acquires, owns, and manages student housing communities located near university campuses in the United States. The company has a P/E ratio of 97.82. The average volume for Education Realty has been 1,523,800 shares per day over the past 30 days. Education Realty has a market cap of $1.2 billion and is part of the real estate industry. Shares are up 22.1% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Education Realty as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including poor profit margins 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 21.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- EDUCATION REALTY TRUST INC reported significant earnings per share improvement 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. This trend suggests that the performance of the business is improving. During the past fiscal year, EDUCATION REALTY TRUST INC turned its bottom line around by earning $0.05 versus -$0.01 in the prior year. This year, the market expects an improvement in earnings ($0.16 versus $0.05).
- The gross profit margin for EDUCATION REALTY TRUST INC is rather low; currently it is at 15.31%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 22.10% trails that of the industry average.
- Net operating cash flow has decreased to $17.18 million or 13.47% 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 Education Realty Ratings Report.
- The revenue growth greatly exceeded the industry average of 3.2%. Since the same quarter one year prior, revenues rose by 38.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for ENERPLUS CORP is rather high; currently it is at 67.46%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 10.67% is above that of the industry average.
- The current debt-to-equity ratio, 0.52, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.42 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Powered by its strong earnings growth of 733.33% and other important driving factors, this stock has surged by 71.28% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
- Net operating cash flow has decreased to $140.41 million or 12.91% 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 Enerplus Ratings Report.
- The revenue growth greatly exceeded the industry average of 10.3%. Since the same quarter one year prior, revenues rose by 47.8%. 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 NORTHSTAR REALTY FINANCE CP is rather high; currently it is at 50.85%. 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 -58.30% is in-line with the industry average.
- Net operating cash flow has increased to $53.70 million or 25.82% when compared to the same quarter last year. Despite an increase in cash flow, NORTHSTAR REALTY FINANCE CP's average is still marginally south of the industry average growth rate of 29.95%.
- The share price of NORTHSTAR REALTY FINANCE CP has not done very well: it is down 9.36% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- 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 348.9% when compared to the same quarter one year ago, falling from $47.96 million to -$119.37 million.
- You can view the full Northstar Realty Finance Ratings Report.
- Our dividend calendar.