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: 10.20% Select Income REIT (NYSE: SIR) shares currently have a dividend yield of 10.20%. 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 22.80. The average volume for Select Income REIT has been 486,400 shares per day over the past 30 days. Select Income REIT has a market cap of $1.8 billion and is part of the real estate industry. Shares are unchanged 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, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, 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 6.8%. Since the same quarter one year prior, revenues leaped by 106.3%. 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 52.95%. Regardless of SIR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SIR's net profit margin of 9.34% is significantly lower than 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 59.5% when compared to the same quarter one year ago, falling from $26.89 million to $10.88 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. In comparison to the other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, SELECT INCOME REIT's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full Select Income REIT Ratings Report.
- RPAI, with its decline in revenue, slightly underperformed the industry average of 6.8%. Since the same quarter one year prior, revenues slightly dropped by 2.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The gross profit margin for RETAIL PPTYS OF AMERICA INC is currently lower than what is desirable, coming in at 26.11%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.01% 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 when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 88.4% when compared to the same quarter one year ago, falling from $25.87 million to $3.01 million.
- You can view the full Retail Properties of America Ratings Report.
- MPC, with its decline in revenue, slightly underperformed the industry average of 32.6%. Since the same quarter one year prior, revenues fell by 32.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 40.04%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 75.52% compared to the year-earlier 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.
- The gross profit margin for MARATHON PETROLEUM CORP is currently extremely low, coming in at 8.13%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 1.36% is above that of the industry average.
- You can view the full Marathon Petroleum Ratings Report.
- Our dividend calendar.