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."Home Properties Dividend Yield: 4.20% Home Properties (NYSE: HME) shares currently have a dividend yield of 4.20%. Home Properties, Inc. is an independent real estate investment trust. The firm invests in the real estate markets of the United States. It is engaged in the ownership, management, acquisition, rehabilitation and development of residential apartment communities. The company has a P/E ratio of 44.93. The average volume for Home Properties has been 391,000 shares per day over the past 30 days. Home Properties has a market cap of $4.2 billion and is part of the real estate industry. Shares are up 8.7% year-to-date as of the close of trading on Monday. 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 Home Properties as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, reasonable valuation levels, notable return on equity and increase in net income. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Highlights from the ratings report include:
- 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.
- 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 6.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Real Estate Investment Trusts (REITs) industry average, but is greater than that of the S&P 500. The net income increased by 16.7% when compared to the same quarter one year prior, going from $56.92 million to $66.43 million.
- 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, HOME PROPERTIES INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Home Properties Ratings Report.
- TC PIPELINES LP has improved earnings per share by 12.7% 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 year. We feel that this trend should continue. During the past fiscal year, TC PIPELINES LP increased its bottom line by earning $2.67 versus $2.13 in the prior year. This year, the market expects an improvement in earnings ($2.82 versus $2.67).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Oil, Gas & Consumable Fuels industry average. The net income increased by 14.6% when compared to the same quarter one year prior, going from $41.00 million to $47.00 million.
- The gross profit margin for TC PIPELINES LP is currently very high, coming in at 77.01%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 54.02% significantly outperformed against the industry average.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 28.84% over the past year, a rise that has exceeded that of the S&P 500 Index. 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.
- Despite the weak revenue results, TCP has outperformed against the industry average of 19.6%. Since the same quarter one year prior, revenues slightly dropped by 1.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full TC Pipelines Ratings Report.
- ORI's revenue growth has slightly outpaced the industry average of 5.7%. Since the same quarter one year prior, revenues slightly increased by 3.3%. 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.
- Although ORI's debt-to-equity ratio of 0.25 is very low, it is currently higher than that of the industry average.
- 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. Compared to other companies in the Insurance industry and the overall market on the basis of return on equity, OLD REPUBLIC INTL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- The share price of OLD REPUBLIC INTL CORP has not done very well: it is down 6.66% 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. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full Old Republic International Corporation Ratings Report.
- Our dividend calendar.