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." Campus Crest Communities (NYSE: CCG) shares currently have a dividend yield of 7.60%. Campus Crest Communities, Inc., a real estate investment trust (REIT), engages in the ownership, development, building, and management of student housing properties under the Grove brand name in the United States. The average volume for Campus Crest Communities has been 418,200 shares per day over the past 30 days. Campus Crest Communities has a market cap of $561.1 million and is part of the real estate industry. Shares are down 7% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Campus Crest Communities as a hold. The company's strongest point has been its expanding profit margins. At the same time, however, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- CCG, with its decline in revenue, underperformed when compared the industry average of 10.3%. Since the same quarter one year prior, revenues slightly dropped by 3.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 27.51%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 400.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The gross profit margin for CAMPUS CREST COMMUNITIES INC is currently extremely low, coming in at 12.88%. Regardless of CCG's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, CCG's net profit margin of 3.28% is significantly lower than the industry average.
- 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 50.7% when compared to the same quarter one year ago, falling from $2.16 million to $1.06 million.
- 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CAMPUS CREST COMMUNITIES INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Campus Crest Communities Ratings Report.