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 and 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 5 stocks with substantial yields, that ultimately, we have rated "Hold." STMicroelectronics (NYSE: STM) shares currently have a dividend yield of 4.40%. STMicroelectronics N.V., an independent semiconductor company, engages in the design, development, manufacture, and marketing of a range of semiconductor integrated circuits and discrete devices. Currently there are 3 analysts that rate STMicroelectronics a buy, no analysts rate it a sell, and 4 rate it a hold. The average volume for STMicroelectronics has been 1,626,000 shares per day over the past 30 days. STMicroelectronics has a market cap of $6.8 billion and is part of the electronics industry. Shares are up 4.1% year to date as of the close of trading on Friday. TheStreet Ratings rates STMicroelectronics as a hold. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. 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:
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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.
- STM's debt-to-equity ratio is very low at 0.22 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.91 is somewhat weak and could be cause for future problems.
- 47.40% is the gross profit margin for STMICROELECTRONICS NV which we consider to be strong. Regardless of STM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, STM's net profit margin of -3.50% significantly underperformed when compared to the industry average.
- STMICROELECTRONICS NV has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, STMICROELECTRONICS NV reported lower earnings of $0.72 versus $0.91 in the prior year. For the next year, the market is expecting a contraction of 111.1% in earnings (-$0.08 versus $0.72).
- 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 Semiconductors & Semiconductor Equipment industry. The net income has significantly decreased by 118.1% when compared to the same quarter one year ago, falling from $420.00 million to -$76.00 million.
- You can view the full STMicroelectronics Ratings Report.
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