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 "Sell."VEREIT Dividend Yield: 6.40% VEREIT (NYSE: VER) shares currently have a dividend yield of 6.40%. VEREIT, Inc. is a publicly owned real estate investment trust. It owns and acquires single tenant, freestanding commercial real estate that is net leased on a medium-term basis, primarily to investment grade credit rated and other creditworthy tenants. The average volume for VEREIT has been 5,342,800 shares per day over the past 30 days. VEREIT has a market cap of $8.0 billion and is part of the real estate industry. Shares are down 8.8% 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 VEREIT as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- 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 94.7% when compared to the same quarter one year ago, falling from -$54.72 million to -$106.52 million.
- 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, VEREIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for VEREIT INC is currently extremely low, coming in at 14.80%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -27.05% is significantly below that of the industry average.
- In its most recent trading session, VER 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. 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.
- VEREIT INC's earnings per share declined by 40.0% 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, VEREIT INC continued to lose money by earning -$1.44 versus -$2.44 in the prior year. This year, the market expects an improvement in earnings (-$0.20 versus -$1.44).
- You can view the full VEREIT Ratings Report.
- BRISTOW GROUP INC 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, BRISTOW GROUP INC reported lower earnings of $2.36 versus $5.09 in the prior year. For the next year, the market is expecting a contraction of 12.7% in earnings ($2.06 versus $2.36).
- 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 Energy Equipment & Services industry. The net income has significantly decreased by 262.3% when compared to the same quarter one year ago, falling from $26.08 million to -$42.33 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Energy Equipment & Services industry and the overall market on the basis of return on equity, BRISTOW GROUP INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for BRISTOW GROUP INC is currently lower than what is desirable, coming in at 25.86%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -9.47% is significantly below that of the industry average.
- Net operating cash flow has decreased to $42.32 million or 33.68% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Bristow Group Ratings Report.
- THRX's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 37.50%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- THERAVANCE 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, THERAVANCE INC reported poor results of -$0.66 versus -$0.30 in the prior year. This year, the market expects an improvement in earnings (-$0.20 versus -$0.66).
- The gross profit margin for THERAVANCE INC is rather high; currently it is at 62.39%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -33.80% is in-line with the industry average.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 78.4% when compared to the same quarter one year prior, rising from -$21.27 million to -$4.58 million.
- THRX's very impressive revenue growth greatly exceeded the industry average of 7.1%. Since the same quarter one year prior, revenues leaped by 1257.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- You can view the full Theravance Ratings Report.
- Our dividend calendar.