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 "Buy."

Digital Realty

Dividend Yield: 4.50%

Digital Realty (NYSE: DLR) shares currently have a dividend yield of 4.50%.

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 51.05.

The average volume for Digital Realty has been 1,236,800 shares per day over the past 30 days. Digital Realty has a market cap of $11.1 billion and is part of the real estate industry. Shares are up 14% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Digital Realty as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 6.1%. Since the same quarter one year prior, revenues slightly increased by 5.7%. 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.
  • Net operating cash flow has increased to $184.06 million or 17.00% when compared to the same quarter last year. In addition, DIGITAL REALTY TRUST INC has also modestly surpassed the industry average cash flow growth rate of 9.44%.
  • DIGITAL REALTY TRUST 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. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over 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 ($2.10 versus $0.98).
  • 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, despite the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • 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 55.4% when compared to the same quarter one year ago, falling from $127.77 million to $56.98 million.

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GEO Group

Dividend Yield: 9.20%

GEO Group (NYSE: GEO) shares currently have a dividend yield of 9.20%.

The GEO Group, Inc. provides government-outsourced services specializing in the management of correctional, detention, and re-entry facilities, and the provision of community based services and youth services in the United States, Australia, South Africa, the United Kingdom, and Canada. The company has a P/E ratio of 15.67.

The average volume for GEO Group has been 534,200 shares per day over the past 30 days. GEO Group has a market cap of $2.1 billion and is part of the real estate industry. Shares are down 29.7% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates GEO Group as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 6.1%. Since the same quarter one year prior, revenues slightly increased by 2.6%. 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 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, GEO GROUP INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • GEO GROUP INC' earnings per share from the most recent quarter came in slightly below the year earlier 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, GEO GROUP INC increased its bottom line by earning $1.99 versus $1.64 in the prior year. For the next year, the market is expecting a contraction of 7.5% in earnings ($1.84 versus $1.99).
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Real Estate Investment Trusts (REITs) industry average. The net income has decreased by 1.7% when compared to the same quarter one year ago, dropping from $38.99 million to $38.31 million.

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Pebblebrook Hotel

Dividend Yield: 4.30%

Pebblebrook Hotel (NYSE: PEB) shares currently have a dividend yield of 4.30%.

Pebblebrook Hotel Trust, through Pebblebrook Hotel, L.P., operates as a real estate investment trust. The company acquires and invests primarily in hotel properties located in the United States. The company has a P/E ratio of 34.52.

The average volume for Pebblebrook Hotel has been 905,900 shares per day over the past 30 days. Pebblebrook Hotel has a market cap of $2.1 billion and is part of the real estate industry. Shares are down 36.5% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Pebblebrook Hotel as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, reasonable valuation levels and good cash flow from operations. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 6.1%. Since the same quarter one year prior, revenues rose by 26.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • PEBBLEBROOK HOTEL TRUST has improved earnings per share by 19.4% 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 two years. We feel that this trend should continue. During the past fiscal year, PEBBLEBROOK HOTEL TRUST increased its bottom line by earning $0.72 versus $0.32 in the prior year. This year, the market expects an improvement in earnings ($0.95 versus $0.72).
  • 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 26.4% when compared to the same quarter one year prior, rising from $30.17 million to $38.12 million.
  • Net operating cash flow has increased to $67.95 million or 13.60% when compared to the same quarter last year. In addition, PEBBLEBROOK HOTEL TRUST has also modestly surpassed the industry average cash flow growth rate of 9.44%.

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