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 4 stocks with substantial yields, that ultimately, we have rated "Buy." Xcel Energy (NYSE: XEL) shares currently have a dividend yield of 4.10%. Xcel Energy Inc., through its subsidiaries, engages in the generation, purchase, transmission, distribution, and sale of electricity in the United States. It operates through Regulated Electric Utility, Regulated Natural Gas Utility, and All Other segments. The company has a P/E ratio of 13.86. The average volume for Xcel Energy has been 3,535,700 shares per day over the past 30 days. Xcel Energy has a market cap of $13.7 billion and is part of the utilities industry. Shares are up 2.7% year to date as of the close of trading on Thursday. TheStreet Ratings rates Xcel Energy as a buy. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, revenue growth, notable return on equity and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- XCEL ENERGY INC has improved earnings per share by 5.3% 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. During the past fiscal year, XCEL ENERGY INC increased its bottom line by earning $1.86 versus $1.73 in the prior year. This year, the market expects an improvement in earnings ($1.90 versus $1.86).
- The net income growth from the same quarter one year ago has significantly exceeded that of the Electric Utilities industry average, but is less than that of the S&P 500. The net income increased by 7.5% when compared to the same quarter one year prior, going from $183.06 million to $196.86 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 17.1%. Since the same quarter one year prior, revenues rose by 13.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- 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 Electric Utilities industry and the overall market on the basis of return on equity, XCEL ENERGY INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Net operating cash flow has increased to $431.90 million or 11.36% when compared to the same quarter last year. Despite an increase in cash flow, XCEL ENERGY INC's cash flow growth rate is still lower than the industry average growth rate of 21.41%.
- You can view the full Xcel Energy Ratings Report.
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