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: 9.40% Select Income REIT (NYSE: SIR) shares currently have a dividend yield of 9.40%. 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 24.70. The average volume for Select Income REIT has been 501,700 shares per day over the past 30 days. Select Income REIT has a market cap of $1.9 billion and is part of the real estate industry. Shares are up 7.6% 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 feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- SIR's very impressive revenue growth greatly exceeded the industry average of 8.0%. 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.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Oil, Gas & Consumable Fuels industry average. The net income increased by 4.8% when compared to the same quarter one year prior, going from $26.17 million to $27.43 million.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, GENESIS ENERGY -LP's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- GEL, with its decline in revenue, slightly underperformed the industry average of 34.5%. Since the same quarter one year prior, revenues fell by 42.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Looking at the price performance of GEL's shares over the past 12 months, there is not much good news to report: the stock is down 39.58%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- The debt-to-equity ratio of 1.44 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, GEL maintains a poor quick ratio of 0.76, which illustrates the inability to avoid short-term cash problems.
- You can view the full Genesis Energy Ratings Report.
- CAT, with its decline in revenue, slightly underperformed the industry average of 20.0%. Since the same quarter one year prior, revenues fell by 22.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- CATERPILLAR 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 reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, CATERPILLAR INC reported lower earnings of $3.44 versus $5.87 in the prior year. This year, the market expects an improvement in earnings ($3.75 versus $3.44).
- The gross profit margin for CATERPILLAR INC is currently lower than what is desirable, coming in at 33.26%. Regardless of CAT'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 -0.78% 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 Machinery industry. The net income has significantly decreased by 111.5% when compared to the same quarter one year ago, falling from $757.00 million to -$87.00 million.
- The debt-to-equity ratio is very high at 2.57 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, CAT maintains a poor quick ratio of 0.87, which illustrates the inability to avoid short-term cash problems.
- You can view the full Caterpillar Ratings Report.
- Our dividend calendar.