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." Sociedad Quimica Y Minera De Chile (NYSE: SQM) shares currently have a dividend yield of 4.60%. Chemical and Mining Company of Chile Inc. engages in the production and distribution of specialty plant nutrients, iodine and its derivatives, lithium and its derivatives, potassium chloride and potassium sulfate, industrial chemicals, and other commodity fertilizers. The company has a P/E ratio of 10.49. The average volume for Sociedad Quimica Y Minera De Chile has been 772,100 shares per day over the past 30 days. Sociedad Quimica Y Minera De Chile has a market cap of $6.8 billion and is part of the chemicals industry. Shares are up 3.1% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Sociedad Quimica Y Minera De Chile as a hold. The company's strengths can be seen in multiple areas, such as its expanding profit margins, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- 39.06% is the gross profit margin for SOC QUIMICA Y MINERA DE CHI which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, SQM's net profit margin of 26.65% significantly outperformed against the industry.
- Net operating cash flow has slightly increased to $179.68 million or 6.53% when compared to the same quarter last year. Despite an increase in cash flow, SOC QUIMICA Y MINERA DE CHI's average is still marginally south of the industry average growth rate of 7.90%.
- Looking at the price performance of SQM's shares over the past 12 months, there is not much good news to report: the stock is down 54.52%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier 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 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 Chemicals industry. The net income has decreased by 15.9% when compared to the same quarter one year ago, dropping from $165.18 million to $138.91 million.
- You can view the full Sociedad Quimica Y Minera De Chile Ratings Report.
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