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 "Sell."Brookfield Property Partners (NYSE: BPY) shares currently have a dividend yield of 4.90%. Brookfield Property Partners L.P. owns, operates, and invests in commercial properties in North America, Europe, Australia, and Brazil. The company has a P/E ratio of 9.92. The average volume for Brookfield Property Partners has been 806,600 shares per day over the past 30 days. Brookfield Property Partners has a market cap of $4.1 billion and is part of the real estate industry. Shares are up 4.5% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Brookfield Property Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income and generally high debt management risk. Highlights from the ratings report include:
- BROOKFIELD PROPERTY PRTRS LP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago.
- 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 Management & Development industry. The net income has significantly decreased by 76.6% when compared to the same quarter one year ago, falling from $329.00 million to $77.00 million.
- The debt-to-equity ratio is very high at 4.78 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.39, which clearly demonstrates the inability to cover short-term cash needs.
- Despite the weak revenue results, BPY has outperformed against the industry average of 33.9%. Since the same quarter one year prior, revenues slightly dropped by 6.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for BROOKFIELD PROPERTY PRTRS LP is rather high; currently it is at 50.05%. Regardless of BPY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.29% trails the industry average.
- You can view the full Brookfield Property Partners Ratings Report.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN CAPITAL MTG INV CP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has declined marginally to $40.73 million or 3.34% 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.
- 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, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- AMERICAN CAPITAL MTG INV CP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AMERICAN CAPITAL MTG INV CP swung to a loss, reporting -$1.58 versus $8.40 in the prior year. This year, the market expects an improvement in earnings ($2.58 versus -$1.58).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 283.5% when compared to the same quarter one year prior, rising from -$26.57 million to $48.76 million.
- You can view the full American Capital Mortgage Investment Ratings Report.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PENN WEST PETROLEUM LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has declined marginally to $232.00 million or 9.37% 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.
- PENN WEST PETROLEUM LTD reported flat earnings per share in the most recent quarter. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, PENN WEST PETROLEUM LTD swung to a loss, reporting -$1.71 versus $0.37 in the prior year.
- PWE has underperformed the S&P 500 Index, declining 22.46% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.4%. Since the same quarter one year prior, revenues slightly dropped by 0.4%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.
- You can view the full Penn West Petroleum Ratings Report.
- Our dividend calendar.