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." Retail Opportunity Investments (NASDAQ: ROIC) shares currently have a dividend yield of 4.10%. Retail Opportunity Investments Corp., a real estate investment trust (REIT), engages in the acquisition, ownership, and management of necessity-based community and neighborhood shopping centers in the eastern and western regions of the United States. The company has a P/E ratio of 31.98. The average volume for Retail Opportunity Investments has been 994,900 shares per day over the past 30 days. Retail Opportunity Investments has a market cap of $1.2 billion and is part of the real estate industry. Shares are up 7% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Retail Opportunity Investments as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, good cash flow from operations, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 10.3%. Since the same quarter one year prior, revenues rose by 47.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- 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 36.8% when compared to the same quarter one year prior, rising from $2.29 million to $3.13 million.
- Net operating cash flow has significantly increased by 268.61% to $16.27 million when compared to the same quarter last year. In addition, RETAIL OPPORTUNITY INVTS CP has also vastly surpassed the industry average cash flow growth rate of 29.95%.
- 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.
- RETAIL OPPORTUNITY INVTS CP reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, RETAIL OPPORTUNITY INVTS CP increased its bottom line by earning $0.47 versus $0.15 in the prior year. For the next year, the market is expecting a contraction of 59.6% in earnings ($0.19 versus $0.47).
- You can view the full Retail Opportunity Investments Ratings Report.