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." Piedmont Office Realty (NYSE: PDM) shares currently have a dividend yield of 4.10%. Piedmont Office Realty Trust, Inc. engages in the acquisition and ownership of commercial real estate properties in the United States. Its property portfolio primarily consists of office and industrial buildings, warehouses, and manufacturing facilities. The company has a P/E ratio of 50.74. The average volume for Piedmont Office Realty has been 799,100 shares per day over the past 30 days. Piedmont Office Realty has a market cap of $3.0 billion and is part of the real estate industry. Shares are up 16% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Piedmont Office Realty as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.3%. Since the same quarter one year prior, revenues slightly increased by 3.6%. 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 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 35.9% when compared to the same quarter one year ago, falling from $14.65 million to $9.39 million.
- The gross profit margin for PIEDMONT OFFICE REALTY TRUST is rather low; currently it is at 18.33%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 6.90% significantly trails the industry average.
- You can view the full Piedmont Office Realty Ratings Report.