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."Lexington Realty Dividend Yield: 6.60% Lexington Realty (NYSE: LXP) shares currently have a dividend yield of 6.60%. Lexington Corporate Properties Trust operates as a self-managed and self-administered real estate investment trust (REIT). The company acquires, owns, and manages a portfolio of office, industrial, and retail properties net-leased to corporate tenants in the United States. The company has a P/E ratio of 19.67. The average volume for Lexington Realty has been 1,211,900 shares per day over the past 30 days. Lexington Realty has a market cap of $2.4 billion and is part of the real estate industry. Shares are up 31% 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 Lexington Realty as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth and increase in net income. However, as a counter to these strengths, we find that the company's return on equity has been disappointing. Highlights from the ratings report include:
- 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.
- LEXINGTON REALTY 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, LEXINGTON REALTY TRUST increased its bottom line by earning $0.44 versus $0.17 in the prior year. This year, the market expects an improvement in earnings ($0.47 versus $0.44).
- Net operating cash flow has slightly increased to $59.22 million or 2.24% when compared to the same quarter last year. Despite an increase in cash flow, LEXINGTON REALTY TRUST's average is still marginally south of the industry average growth rate of 11.39%.
- 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, LEXINGTON REALTY TRUST's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Lexington Realty Ratings Report.
- 39.07% is the gross profit margin for MACY'S INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 2.01% trails the industry average.
- M, with its decline in revenue, underperformed when compared the industry average of 6.0%. Since the same quarter one year prior, revenues slightly dropped by 7.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Currently the debt-to-equity ratio of 1.84 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.22, which clearly demonstrates the inability to cover short-term cash needs.
- Net operating cash flow has significantly decreased to $8.00 million or 84.90% 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 Macy's Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 6.4%. Since the same quarter one year prior, revenues slightly increased by 5.2%. 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 greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Commercial Services & Supplies industry and the overall market on the basis of return on equity, COVANTA HOLDING CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- COVANTA HOLDING CORP' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, COVANTA HOLDING CORP turned its bottom line around by earning $0.50 versus -$0.02 in the prior year. For the next year, the market is expecting a contraction of 81.0% in earnings ($0.10 versus $0.50).
- Net operating cash flow has decreased to $31.00 million or 26.19% 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.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, CVA has underperformed the S&P 500 Index, declining 23.75% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full Covanta Ratings Report.
- Our dividend calendar.