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." Digital Realty Dividend Yield: 5.20% Digital Realty (NYSE: DLR) shares currently have a dividend yield of 5.20%. Digital Realty Trust, Inc., a real estate investment trust (REIT), through its controlling interest in Digital Realty Trust, L.P., engages in the ownership, acquisition, development, redevelopment, and management of technology-related real estate. The company has a P/E ratio of 44.45. The average volume for Digital Realty has been 1,042,900 shares per day over the past 30 days. Digital Realty has a market cap of $8.9 billion and is part of the real estate industry. Shares are down 0.8% 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 Digital Realty as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and poor profit margins. Highlights from the ratings report include:
- 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. Although other factors naturally played a role, the company's strong earnings growth was key. 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 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 161.8% when compared to the same quarter one year prior, rising from $45.91 million to $120.18 million.
- DIGITAL REALTY TRUST 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, DIGITAL REALTY TRUST INC reported lower earnings of $0.98 versus $2.10 in the prior year. This year, the market expects an improvement in earnings ($1.18 versus $0.98).
- The gross profit margin for DIGITAL REALTY TRUST INC is currently lower than what is desirable, coming in at 26.90%. Regardless of DLR's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, DLR's net profit margin of 29.38% compares favorably to 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, DIGITAL REALTY TRUST INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Digital Realty Ratings Report.
- The revenue fell significantly faster than the industry average of 3.9%. Since the same quarter one year prior, revenues fell by 37.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- TELEFONICA SA 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 two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, TELEFONICA SA reported lower earnings of $0.74 versus $1.39 in the prior year. This year, the market expects an improvement in earnings ($1.74 versus $0.74).
- 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 Diversified Telecommunication Services industry. The net income has significantly decreased by 98.4% when compared to the same quarter one year ago, falling from $2,071.94 million to $33.79 million.
- Although TEF's debt-to-equity ratio of 2.84 is very high, it is currently less than that of the industry average. To add to this, TEF has a quick ratio of 0.68, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full Telefonica Ratings Report.
- PEGI's very impressive revenue growth greatly exceeded the industry average of 2.8%. Since the same quarter one year prior, revenues leaped by 90.1%. 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 significantly increased by 222.56% to $31.46 million when compared to the same quarter last year. In addition, PATTERN ENERGY GROUP INC has also vastly surpassed the industry average cash flow growth rate of -39.89%.
- Compared to other companies in the Independent Power Producers & Energy Traders industry and the overall market, PATTERN ENERGY GROUP INC's return on equity significantly trails that of both the industry average and the S&P 500.
- 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 Independent Power Producers & Energy Traders industry. The net income has significantly decreased by 54.7% when compared to the same quarter one year ago, falling from -$13.18 million to -$20.39 million.
- The debt-to-equity ratio is very high at 2.37 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, PEGI has a quick ratio of 0.57, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full Pattern Energy Group Ratings Report.
- Our dividend calendar.