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: 8.00% Select Income REIT (NYSE: SIR) shares currently have a dividend yield of 8.00%. 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 21.08. The average volume for Select Income REIT has been 325,700 shares per day over the past 30 days. Select Income REIT has a market cap of $2.2 billion and is part of the real estate industry. Shares are up 24.8% year-to-date as of the close of trading on Monday. 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, solid stock price performance and reasonable valuation levels. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 11.9%. Since the same quarter one year prior, revenues rose by 24.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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. Although other factors naturally played a role, the company's strong earnings growth was key. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- SELECT INCOME REIT 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, SELECT INCOME REIT reported lower earnings of $0.84 versus $1.91 in the prior year. This year, the market expects an improvement in earnings ($1.45 versus $0.84).
- 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. 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.
- Net operating cash flow has declined marginally to $38.54 million or 1.76% 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.
- You can view the full Select Income REIT Ratings Report.
- RRMS's very impressive revenue growth greatly exceeded the industry average of 24.5%. Since the same quarter one year prior, revenues leaped by 51.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ROSE ROCK MIDSTREAM LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- ROSE ROCK MIDSTREAM LP 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, ROSE ROCK MIDSTREAM LP reported lower earnings of $0.79 versus $1.52 in the prior year. This year, the market expects an improvement in earnings ($1.34 versus $0.79).
- RRMS's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 46.05%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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 is very high at 3.34 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, RRMS maintains a poor quick ratio of 1.00, which illustrates the inability to avoid short-term cash problems.
- You can view the full Rose Rock Midstream Ratings Report.
- MSB has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 11.24, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for MESABI TRUST is currently very high, coming in at 100.00%. MSB has managed to maintain the strong profit margin since the same quarter of last year.
- MSB, with its decline in revenue, slightly underperformed the industry average of 44.9%. Since the same quarter one year prior, revenues fell by 48.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- MESABI 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. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, MESABI TRUST reported lower earnings of $0.65 versus $1.89 in the prior year.
- Net operating cash flow has significantly decreased to $2.23 million or 73.63% 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.
- You can view the full Mesabi Ratings Report.
- Our dividend calendar.