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 Dividend Yield: 4.80% HCP (NYSE: HCP) shares currently have a dividend yield of 4.80%. 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 23.06. The average volume for HCP has been 3,017,400 shares per day over the past 30 days. HCP has a market cap of $21.5 billion and is part of the real estate industry. Shares are up 3% year-to-date as of the close of trading on Wednesday. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more. TheStreet Ratings rates HCP as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, growth in earnings per share, good cash flow from operations and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results. Highlights from the ratings report include:
- HCP's revenue growth has slightly outpaced the industry average of 6.8%. Since the same quarter one year prior, revenues slightly increased by 8.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- HCP INC has improved earnings per share by 10.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HCP INC increased its bottom line by earning $1.97 versus $1.80 in the prior year. This year, the market expects an improvement in earnings ($2.05 versus $1.97).
- Net operating cash flow has slightly increased to $275.32 million or 1.19% when compared to the same quarter last year. In addition, HCP INC has also modestly surpassed the industry average cash flow growth rate of -7.14%.
- The gross profit margin for HCP INC is rather high; currently it is at 53.97%. 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 40.81% significantly outperformed against the industry.
- You can view the full HCP Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 11.7%. Since the same quarter one year prior, revenues slightly increased by 6.4%. 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.
- Net operating cash flow has slightly increased to $2,617.00 million or 6.20% when compared to the same quarter last year. In addition, SOUTHERN CO has also modestly surpassed the industry average cash flow growth rate of 4.29%.
- 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. Compared to other companies in the Electric Utilities industry and the overall market on the basis of return on equity, SOUTHERN CO has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Compared to its closing price of one year ago, SO's share price has jumped by 29.10%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- 41.39% is the gross profit margin for SOUTHERN CO which we consider to be strong. Regardless of SO'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 13.76% trails the industry average.
- You can view the full Southern Ratings Report.
- 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. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, TELEFONICA SA has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- TELEFONICA SA's earnings per share declined by 37.1% 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, TELEFONICA SA increased its bottom line by earning $1.39 versus $1.14 in the prior year. This year, the market expects an improvement in earnings ($1.92 versus $1.39).
- The revenue fell significantly faster than the industry average of 2.5%. Since the same quarter one year prior, revenues fell by 32.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The change in net income from the same quarter one year ago has significantly exceeded that of the Diversified Telecommunication Services industry average, but is less than that of the S&P 500. The net income has significantly decreased by 37.3% when compared to the same quarter one year ago, falling from $1,581.90 million to $992.51 million.
- You can view the full Telefonica Ratings Report.
- Our dividend calendar.