Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.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 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 3 stocks with substantial yields, that ultimately, we have rated "Buy."CA (NASDAQ:CA) shares currently have a dividend yield of 4.10%. CA Technologies, together with its subsidiaries, provides enterprise information technology (IT) management software and solutions in the United States and internationally. The company operates in three segments: Mainframe Solutions, Enterprise Solutions, and Services. The company has a P/E ratio of 12.41.The average volume for CA has been 3,459,800 shares per day over the past 30 days. CA has a market cap of $11.1 billion and is part of the computer software & services industry. Shares are up 11.2% year to date as of the close of trading on Thursday.TheStreet Ratings rates CA as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, attractive valuation levels, good cash flow from operations, growth in earnings per share and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.Highlights from the ratings report include:
- 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. Compared to other companies in the Software industry and the overall market, CA INC's return on equity exceeds that of both the industry average and the S&P 500.
- Net operating cash flow has increased to $566.00 million or 44.38% when compared to the same quarter last year. In addition, CA INC has also vastly surpassed the industry average cash flow growth rate of -15.94%.
- CA INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CA INC increased its bottom line by earning $1.91 versus $1.61 in the prior year. This year, the market expects an improvement in earnings ($2.42 versus $1.91).
- CA's debt-to-equity ratio is very low at 0.24 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 1.00 is somewhat weak and could be cause for future problems.
- You can view the full CA Ratings Report.
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