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." Kindred Healthcare Dividend Yield: 4.10% Kindred Healthcare (NYSE: KND) shares currently have a dividend yield of 4.10%. Kindred Healthcare, Inc. provides healthcare services in the United States. It operates in six segments: Hospitals, Home Health Services, Hospice Services, Kindred Hospital Rehabilitation Services, RehabCare, and Nursing Centers. The company has a P/E ratio of 14.16. The average volume for Kindred Healthcare has been 878,100 shares per day over the past 30 days. Kindred Healthcare has a market cap of $1.0 billion and is part of the health services industry. Shares are up 2.6% 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 Kindred Healthcare as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, generally higher debt management risk and poor profit margins. Highlights from the ratings report include:
- KND's revenue growth has slightly outpaced the industry average of 8.8%. Since the same quarter one year prior, revenues slightly increased by 9.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Providers & Services industry. The net income increased by 108.8% when compared to the same quarter one year prior, rising from -$146.83 million to $13.00 million.
- KINDRED HEALTHCARE INC 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, KINDRED HEALTHCARE INC reported poor results of -$1.25 versus -$0.24 in the prior year. This year, the market expects an improvement in earnings ($0.91 versus -$1.25).
- KND'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 41.58%, 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. 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 debt-to-equity ratio is very high at 2.25 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, KND has managed to keep a strong quick ratio of 1.54, which demonstrates the ability to cover short-term cash needs.
- You can view the full Kindred Healthcare Ratings Report.
- The current debt-to-equity ratio, 0.46, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.98 is somewhat weak and could be cause for future problems.
- UFS, with its decline in revenue, slightly underperformed the industry average of 0.5%. Since the same quarter one year prior, revenues slightly dropped by 4.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for DOMTAR CORP is rather low; currently it is at 18.41%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.31% trails that of the industry average.
- Net operating cash flow has decreased to $97.00 million or 23.62% 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 Domtar Ratings Report.
- PEB's revenue growth has slightly outpaced the industry average of 11.9%. Since the same quarter one year prior, revenues rose by 20.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- PEBBLEBROOK HOTEL TRUST reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, PEBBLEBROOK HOTEL TRUST increased its bottom line by earning $0.94 versus $0.72 in the prior year. This year, the market expects an improvement in earnings ($1.07 versus $0.94).
- PEB'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 41.30%, 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 gross profit margin for PEBBLEBROOK HOTEL TRUST is currently extremely low, coming in at 13.40%. Regardless of PEB's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, PEB's net profit margin of 8.63% is significantly lower than the industry average.
- You can view the full Pebblebrook Hotel Ratings Report.
- Our dividend calendar.