What To Hold: 3 Hold-Rated Dividend Stocks RPAI, GOV, PSEC

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer

TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.

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."

Retail Properties of America

Dividend Yield: 4.40%

Retail Properties of America (NYSE: RPAI) shares currently have a dividend yield of 4.40%.

Retail Properties of America, Inc. is a real estate investment trust. It engages in acquisition, development and management of properties. The trust invests in the real estate markets of United States. The company has a P/E ratio of 108.57.

The average volume for Retail Properties of America has been 1,362,600 shares per day over the past 30 days. Retail Properties of America has a market cap of $3.6 billion and is part of the real estate industry. Shares are down 5.4% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Retail Properties of America as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and relatively poor performance when compared with the S&P 500 during the past year.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.5%. Since the same quarter one year prior, revenues slightly increased by 3.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • RETAIL PPTYS OF AMERICA INC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, RETAIL PPTYS OF AMERICA INC turned its bottom line around by earning $0.15 versus -$0.20 in the prior year. For the next year, the market is expecting a contraction of 26.7% in earnings ($0.11 versus $0.15).
  • The gross profit margin for RETAIL PPTYS OF AMERICA INC is currently lower than what is desirable, coming in at 26.97%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 8.53% significantly trails the industry average.
  • The company, on the basis of change in net income 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 has decreased by 7.4% when compared to the same quarter one year ago, dropping from $14.13 million to $13.08 million.

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Government Properties Income

Dividend Yield: 8.80%

Government Properties Income (NYSE: GOV) shares currently have a dividend yield of 8.80%.

Government Properties Income Trust is an equity real estate investment trust launched and managed by Reit Management & Research LLC. The trust invests in the real estate markets of United States. It engages in investment, operation and maintenance of real estate assets. The company has a P/E ratio of 122.62.

The average volume for Government Properties Income has been 754,500 shares per day over the past 30 days. Government Properties Income has a market cap of $1.4 billion and is part of the real estate industry. Shares are down 14.2% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Government Properties Income as a hold. Among the primary strengths of the company is its revenue growth. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.5%. Since the same quarter one year prior, revenues slightly increased by 4.3%. 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.
  • Net operating cash flow has declined marginally to $28.25 million or 9.06% when compared to the same quarter last year. Despite a decrease in cash flow GOVERNMENT PPTYS INCOME TR is still fairing well by exceeding its industry average cash flow growth rate of -51.19%.
  • 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, GOVERNMENT PPTYS INCOME TR's return on equity significantly trails that of both the industry average and the S&P 500.
  • GOVERNMENT PPTYS INCOME TR 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, GOVERNMENT PPTYS INCOME TR reported lower earnings of $0.87 versus $1.02 in the prior year. For the next year, the market is expecting a contraction of 4.6% in earnings ($0.83 versus $0.87).
  • 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 319.7% when compared to the same quarter one year ago, falling from $15.19 million to -$33.37 million.

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Prospect Capital Corporation

Dividend Yield: 12.30%

Prospect Capital Corporation (NASDAQ: PSEC) shares currently have a dividend yield of 12.30%.

Prospect Capital Corporation is a business development company. The company has a P/E ratio of 8.24.

The average volume for Prospect Capital Corporation has been 2,374,100 shares per day over the past 30 days. Prospect Capital Corporation has a market cap of $2.9 billion and is part of the financial services industry. Shares are down 2.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Prospect Capital Corporation as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and disappointing return on equity.

Highlights from the ratings report include:
  • PSEC's revenue growth has slightly outpaced the industry average of 5.4%. Since the same quarter one year prior, revenues rose by 11.7%. 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 gross profit margin for PROSPECT CAPITAL CORP is rather high; currently it is at 67.16%. Regardless of PSEC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PSEC's net profit margin of 43.22% significantly outperformed against the industry.
  • Net operating cash flow has significantly increased by 56.83% to -$125.47 million when compared to the same quarter last year. Despite an increase in cash flow of 56.83%, PROSPECT CAPITAL CORP is still growing at a significantly lower rate than the industry average of 244.87%.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, PSEC has underperformed the S&P 500 Index, declining 21.18% 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.
  • PROSPECT CAPITAL CORP's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has managed its earnings and share float. We anticipate this stability to falter in the coming year and, in turn, the company to deliver lower earnings per share than prior full year. During the past fiscal year, PROSPECT CAPITAL CORP increased its bottom line by earning $1.08 versus $1.07 in the prior year. For the next year, the market is expecting a contraction of 2.8% in earnings ($1.05 versus $1.08).

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