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."Resource Capital Dividend Yield: 17.70% Resource Capital (NYSE: RSO) shares currently have a dividend yield of 17.70%. Resource Capital Corp., a diversified real estate investment trust, primarily focuses on originating, holding, and managing commercial mortgage loans and other commercial real estate-related debt and equity investments in the United States. The company has a P/E ratio of 13.26. The average volume for Resource Capital has been 803,100 shares per day over the past 30 days. Resource Capital has a market cap of $604.7 million and is part of the real estate industry. Shares are down 8.9% year-to-date as of the close of trading on Thursday. EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE. TheStreet Ratings rates Resource Capital as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including 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 significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 996.0% when compared to the same quarter one year prior, rising from $1.17 million to $12.78 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.9%. Since the same quarter one year prior, revenues slightly increased by 7.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for RESOURCE CAPITAL CORP is rather high; currently it is at 52.51%. Regardless of RSO'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 28.34% trails the industry average.
- RSO has underperformed the S&P 500 Index, declining 17.01% 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.
- 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, RESOURCE CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Resource Capital Ratings Report.
- 45.69% is the gross profit margin for OCH-ZIFF CAPITAL MGMT LLC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 12.31% trails the industry average.
- OZM, with its decline in revenue, underperformed when compared the industry average of 13.1%. Since the same quarter one year prior, revenues fell by 37.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- OCH-ZIFF CAPITAL MGMT LLC 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 has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, OCH-ZIFF CAPITAL MGMT LLC reported lower earnings of $0.75 versus $1.50 in the prior year. This year, the market expects an improvement in earnings ($1.47 versus $0.75).
- The share price of OCH-ZIFF CAPITAL MGMT LLC has not done very well: it is down 11.07% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.
- 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 Capital Markets industry. The net income has significantly decreased by 57.5% when compared to the same quarter one year ago, falling from $199.06 million to $84.68 million.
- You can view the full Och-Ziff Capital Management Group Ratings Report.
- The gross profit margin for CVR PARTNERS LP is rather high; currently it is at 50.13%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 33.33% significantly outperformed against the industry average.
- Net operating cash flow has increased to $39.26 million or 20.84% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -2.70%.
- UAN, with its decline in revenue, slightly underperformed the industry average of 4.7%. Since the same quarter one year prior, revenues fell by 11.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Chemicals industry and the overall market on the basis of return on equity, CVR PARTNERS LP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- Looking at the price performance of UAN's shares over the past 12 months, there is not much good news to report: the stock is down 30.86%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full CVR Partners Ratings Report.
- Our dividend calendar.