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."Spirit Realty Capital (NYSE: SRC) shares currently have a dividend yield of 5.80%. Spirit Realty Capital, Inc is a publicly traded real estate investment trust. The average volume for Spirit Realty Capital has been 5,145,800 shares per day over the past 30 days. Spirit Realty Capital has a market cap of $4.3 billion and is part of the real estate industry. Shares are up 16.2% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Spirit Realty Capital as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and poor profit margins. Highlights from the ratings report include:
- SRC's very impressive revenue growth greatly exceeded the industry average of 10.0%. Since the same quarter one year prior, revenues leaped by 109.6%. 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.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The gross profit margin for SPIRIT REALTY CAPITAL INC is currently lower than what is desirable, coming in at 29.61%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -59.17% is significantly below that of 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 669.7% when compared to the same quarter one year ago, falling from -$11.67 million to -$89.82 million.
- You can view the full Spirit Realty Capital Ratings Report.
- Net operating cash flow has slightly increased to $359.85 million or 3.53% when compared to the same quarter last year. In addition, STAPLES INC has also modestly surpassed the industry average cash flow growth rate of -3.20%.
- SPLS's debt-to-equity ratio is very low at 0.19 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.74 is somewhat weak and could be cause for future problems.
- 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 Specialty Retail industry. The net income has significantly decreased by 43.4% when compared to the same quarter one year ago, falling from $169.93 million to $96.21 million.
- The gross profit margin for STAPLES INC is currently lower than what is desirable, coming in at 26.94%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.70% trails that of the industry average.
- You can view the full Staples Ratings Report.
- 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 223.8% when compared to the same quarter one year prior, rising from $11.72 million to $37.96 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.5%. Since the same quarter one year prior, revenues slightly increased by 1.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- CBL & ASSOCIATES PPTYS INC 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, CBL & ASSOCIATES PPTYS INC reported lower earnings of $0.27 versus $0.59 in the prior year. This year, the market expects an improvement in earnings ($0.80 versus $0.27).
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CBL & ASSOCIATES PPTYS INC's return on equity is below that of both the industry average and the S&P 500.
- CBL has underperformed the S&P 500 Index, declining 17.88% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full CBL & Associates Properties Ratings Report.
- Our dividend calendar.