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." Arbor Realty (NYSE: ABR) shares currently have a dividend yield of 7.60%. Arbor Realty Trust, Inc. operates as a real estate investment trust (REIT) in the United States. The company has a P/E ratio of 20.82. The average volume for Arbor Realty has been 109,600 shares per day over the past 30 days. Arbor Realty has a market cap of $344.4 million and is part of the real estate industry. Shares are up 3.1% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Arbor Realty as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, disappointing return on equity 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 the Real Estate Investment Trusts (REITs) industry average. The net income increased by 4.1% when compared to the same quarter one year prior, going from $7.17 million to $7.47 million.
- 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 5.7%. 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 ARBOR REALTY TRUST INC is rather high; currently it is at 52.02%. 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 21.65% trails the industry average.
- ARBOR REALTY TRUST INC's earnings per share declined by 36.8% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, ARBOR REALTY TRUST INC reported lower earnings of $0.41 versus $0.65 in the prior year. For the next year, the market is expecting a contraction of 4.9% in earnings ($0.39 versus $0.41).
- 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 on the basis of return on equity, ARBOR REALTY TRUST INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Arbor Realty Ratings Report.