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." HCP (NYSE: HCP) shares currently have a dividend yield of 5.10%. HCP, Inc. is an independent hybrid real estate investment trust. The fund invests in real estate markets of the United States. The company has a P/E ratio of 21.64. The average volume for HCP has been 2,207,600 shares per day over the past 30 days. HCP has a market cap of $19.5 billion and is part of the real estate industry. Shares are up 17% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates HCP as a buy. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth, good cash flow from operations, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster 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 12.4% when compared to the same quarter one year prior, going from $230.59 million to $259.11 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.1%. Since the same quarter one year prior, revenues slightly increased by 3.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- Net operating cash flow has increased to $247.18 million or 15.31% when compared to the same quarter last year. In addition, HCP INC has also vastly surpassed the industry average cash flow growth rate of -37.20%.
- HCP INC reported flat earnings per share in the most recent quarter. 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, HCP INC increased its bottom line by earning $1.96 versus $1.80 in the prior year. This year, the market expects an improvement in earnings ($2.05 versus $1.96).
- The gross profit margin for HCP INC is rather high; currently it is at 62.45%. Regardless of HCP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HCP's net profit margin of 47.58% significantly outperformed against the industry.
- You can view the full HCP Ratings Report.