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: 4.10% Home Properties (NYSE: HME) shares currently have a dividend yield of 4.10%. 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 32.53. The average volume for Home Properties has been 510,100 shares per day over the past 30 days. Home Properties has a market cap of $4.3 billion and is part of the real estate industry. Shares are up 10.6% year-to-date as of the close of trading on Tuesday. 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, increase in net income, revenue growth, reasonable valuation levels and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low 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. 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.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 25.3% when compared to the same quarter one year prior, rising from $45.79 million to $57.36 million.
- 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 6.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has increased to $89.97 million or 14.63% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 0.76%.
- You can view the full Home Properties Ratings Report.
- SOUTHERN CO has improved earnings per share by 43.6% 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, SOUTHERN CO increased its bottom line by earning $2.18 versus $1.87 in the prior year. This year, the market expects an improvement in earnings ($2.85 versus $2.18).
- SO, with its decline in revenue, underperformed when compared the industry average of 2.7%. Since the same quarter one year prior, revenues slightly dropped by 9.9%. The declining revenue has not hurt the company's bottom line, with increasing 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 Electric Utilities industry average, but is greater than that of the S&P 500. The net income increased by 42.7% when compared to the same quarter one year prior, rising from $368.00 million to $525.00 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 Electric Utilities industry and the overall market, SOUTHERN CO's return on equity is below that of both the industry average and the S&P 500.
- The gross profit margin for SOUTHERN CO is currently lower than what is desirable, coming in at 34.74%. Regardless of SO's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 12.55% trails the industry average.
- You can view the full Southern Ratings Report.
- EPR's revenue growth has slightly outpaced the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 10.5%. 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.
- Net operating cash flow has increased to $57.52 million or 38.49% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 0.76%.
- The gross profit margin for EPR PROPERTIES is rather high; currently it is at 64.76%. Regardless of EPR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EPR's net profit margin of 42.98% significantly outperformed against the industry.
- EPR PROPERTIES' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, EPR PROPERTIES reported lower earnings of $2.78 versus $3.13 in the prior year. This year, the market expects an improvement in earnings ($2.92 versus $2.78).
- In its most recent trading session, EPR has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
- You can view the full EPR Properties Ratings Report.
- Our dividend calendar.