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."Select Income REIT Dividend Yield: 6.00% Select Income REIT (NYSE: SIR) shares currently have a dividend yield of 6.00%. Select Income REIT, a real estate investment trust (REIT), primarily owns and invests in single tenant and net leased properties. The company has a P/E ratio of 15.93. The average volume for Select Income REIT has been 726,200 shares per day over the past 30 days. Select Income REIT has a market cap of $2.0 billion and is part of the real estate industry. Shares are down 6% year-to-date as of the close of trading on Friday. 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 Select Income REIT as a hold. Among the primary strengths of the company is its robust revenue growth -- not just in the most recent periods but in previous quarters as well. At the same time, however, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- SIR's very impressive revenue growth greatly exceeded the industry average of 8.5%. Since the same quarter one year prior, revenues leaped by 78.5%. 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.
- The share price of SELECT INCOME REIT has not done very well: it is down 24.79% 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.
- SELECT INCOME REIT 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. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, SELECT INCOME REIT reported lower earnings of $1.91 versus $2.11 in the prior year. For the next year, the market is expecting a contraction of 34.0% in earnings ($1.26 versus $1.91).
- 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 Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, SELECT INCOME REIT underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for SELECT INCOME REIT is currently lower than what is desirable, coming in at 26.54%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 4.20% significantly trails the industry average.
- You can view the full Select Income REIT Ratings Report.
- The gross profit margin for TEEKAY LNG PARTNERS LP is currently very high, coming in at 75.77%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 33.17% significantly outperformed against the industry average.
- Despite the weak revenue results, TGP has significantly outperformed against the industry average of 37.8%. Since the same quarter one year prior, revenues slightly dropped by 5.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The debt-to-equity ratio of 1.29 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, TGP has a quick ratio of 0.59, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, TEEKAY LNG PARTNERS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full Teekay LNG Partners Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Chemicals industry. The net income increased by 15.5% when compared to the same quarter one year prior, going from -$58.00 million to -$49.00 million.
- TRONOX LTD has improved earnings per share by 17.6% 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, TRONOX LTD reported poor results of -$3.73 versus -$1.10 in the prior year. This year, the market expects an improvement in earnings (-$0.50 versus -$3.73).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 14.1%. Since the same quarter one year prior, revenues slightly dropped by 7.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for TRONOX LTD is currently extremely low, coming in at 9.09%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -12.72% is significantly below that of the industry average.
- Net operating cash flow has significantly decreased to -$65.00 million or 441.66% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Tronox Ratings Report.
- Our dividend calendar.