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."Select Income REIT Dividend Yield: 11.10% Select Income REIT (NYSE: SIR) shares currently have a dividend yield of 11.10%. Select Income REIT, a real estate investment trust (REIT), primarily owns and invests in single tenant and net leased properties. The company has a P/E ratio of 15.08. The average volume for Select Income REIT has been 457,900 shares per day over the past 30 days. Select Income REIT has a market cap of $1.6 billion and is part of the real estate industry. Shares are down 6.3% 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 Select Income REIT as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, attractive valuation levels and increase in net income. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- SIR's very impressive revenue growth greatly exceeded the industry average of 6.1%. Since the same quarter one year prior, revenues leaped by 97.3%. 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.
- The gross profit margin for SELECT INCOME REIT is rather high; currently it is at 51.52%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, SIR's net profit margin of 27.48% compares favorably to the industry average.
- SELECT INCOME REIT's earnings per share declined by 15.0% in the most recent quarter compared to 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, SELECT INCOME REIT reported lower earnings of $1.91 versus $2.11 in the prior year. For the next year, the market is expecting a contraction of 42.9% in earnings ($1.09 versus $1.91).
- 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, SELECT INCOME REIT's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Select Income REIT Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 35.7% when compared to the same quarter one year prior, rising from $167.25 million to $226.96 million.
- The gross profit margin for ONEOK PARTNERS -LP is rather low; currently it is at 19.78%. Regardless of OKS's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, OKS's net profit margin of 11.95% significantly outperformed against the industry.
- ONEOK PARTNERS -LP has improved earnings per share by 40.6% 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, ONEOK PARTNERS -LP reported lower earnings of $2.34 versus $2.35 in the prior year. For the next year, the market is expecting a contraction of 29.9% in earnings ($1.64 versus $2.34).
- The debt-to-equity ratio of 1.06 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.31, which clearly demonstrates the inability to cover short-term cash needs.
- You can view the full ONEOK Partners Ratings Report.
- Net operating cash flow has increased to $68.97 million or 11.54% when compared to the same quarter last year. In addition, LEXINGTON REALTY TRUST has also modestly surpassed the industry average cash flow growth rate of 9.43%.
- LEXINGTON REALTY TRUST 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. 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, LEXINGTON REALTY TRUST turned its bottom line around by earning $0.17 versus -$0.18 in the prior year. This year, the market expects an improvement in earnings ($0.40 versus $0.17).
- The gross profit margin for LEXINGTON REALTY TRUST is rather low; currently it is at 18.63%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -5.66% is significantly below that of the industry average.
- 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 114.8% when compared to the same quarter one year ago, falling from $40.41 million to -$5.98 million.
- You can view the full Lexington Realty Ratings Report.
- Our dividend calendar.