What To Hold: 3 Hold-Rated Dividend Stocks DRH, RDS.B, SNH

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 "Hold."

Diamondrock Hospitality

Dividend Yield: 5.50%

Diamondrock Hospitality (NYSE: DRH) shares currently have a dividend yield of 5.50%.

DiamondRock Hospitality Company, a lodging focused real estate company, owns premium hotels and resorts in North America. The company has a P/E ratio of 19.78.

The average volume for Diamondrock Hospitality has been 2,166,200 shares per day over the past 30 days. Diamondrock Hospitality has a market cap of $1.8 billion and is part of the real estate industry. Shares are down 5.4% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Diamondrock Hospitality as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and poor profit margins.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 57.7% when compared to the same quarter one year prior, rising from $10.64 million to $16.78 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 11.9%. Since the same quarter one year prior, revenues slightly increased by 2.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • DIAMONDROCK HOSPITALITY CO 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, DIAMONDROCK HOSPITALITY CO reported lower earnings of $0.43 versus $0.82 in the prior year. This year, the market expects an improvement in earnings ($0.57 versus $0.43).
  • Net operating cash flow has decreased to $29.68 million or 13.72% 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.
  • 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, DIAMONDROCK HOSPITALITY CO's return on equity is below that of both the industry average and the S&P 500.

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Royal Dutch Shell

Dividend Yield: 7.60%

Royal Dutch Shell (NYSE: RDS.B) shares currently have a dividend yield of 7.60%.

Royal Dutch Shell plc operates as an independent oil and gas company worldwide. It operates through Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas, and natural gas liquids. The company has a P/E ratio of 6.30.

The average volume for Royal Dutch Shell has been 2,103,700 shares per day over the past 30 days. Royal Dutch Shell has a market cap of $199.7 billion and is part of the energy industry. Shares are up 8.9% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Royal Dutch Shell as a hold. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. At the same time, however, we also find weaknesses including deteriorating net income, poor profit margins and weak operating cash flow.

Highlights from the ratings report include:
  • The current debt-to-equity ratio, 0.41, is low and is below the industry average, implying that there has been successful management of debt levels.
  • RDS.B, with its decline in revenue, slightly underperformed the industry average of 24.5%. Since the same quarter one year prior, revenues fell by 26.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • ROYAL DUTCH SHELL PLC 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, ROYAL DUTCH SHELL PLC reported lower earnings of $0.60 versus $4.70 in the prior year. This year, the market expects an improvement in earnings ($4.52 versus $0.60).
  • Net operating cash flow has significantly decreased to $661.00 million or 90.69% 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.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 89.1% when compared to the same quarter one year ago, falling from $4,430.00 million to $484.00 million.

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Senior Housing Properties

Dividend Yield: 8.20%

Senior Housing Properties (NYSE: SNH) shares currently have a dividend yield of 8.20%.

Senior Housing Properties Trust, a real estate investment trust (REIT), primarily invests in senior housing properties in the United States. The trust invests in hospitals, nursing homes, senior apartments, independent living properties, and assisted living properties. The company has a P/E ratio of 38.80.

The average volume for Senior Housing Properties has been 1,829,000 shares per day over the past 30 days. Senior Housing Properties has a market cap of $4.5 billion and is part of the real estate industry. Shares are up 27.6% year-to-date as of the close of trading on Monday.

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TheStreet Ratings rates Senior Housing Properties as a hold. The company's strengths can be seen in multiple areas, such as its 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 poor profit margins.

Highlights from the ratings report include:
  • SNH's revenue growth has slightly outpaced the industry average of 11.9%. Since the same quarter one year prior, revenues rose by 13.0%. 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 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, SENIOR HOUSING PPTYS TRUST's return on equity is below that of both the industry average and the S&P 500.
  • The gross profit margin for SENIOR HOUSING PPTYS TRUST is currently lower than what is desirable, coming in at 31.70%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 12.09% significantly trails the industry average.

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