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." Westar Energy (NYSE: WR) shares currently have a dividend yield of 4.20%. Westar Energy, Inc., an electric utility, engages in the generation, transmission, and distribution of electricity in Kansas. It produces electricity through various sources, including coal, wind, nuclear, natural gas, oil, and diesel. The company has a P/E ratio of 14.94. Currently there are 4 analysts that rate Westar Energy a buy, no analysts rate it a sell, and 5 rate it a hold. The average volume for Westar Energy has been 664,900 shares per day over the past 30 days. Westar Energy has a market cap of $4.1 billion and is part of the utilities industry. Shares are up 11.9% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Westar Energy as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, solid stock price performance, good cash flow from operations and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated. Highlights from the ratings report include:
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electric Utilities industry. The net income increased by 133.0% when compared to the same quarter one year prior, rising from $19.58 million to $45.61 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 14.9%. Since the same quarter one year prior, revenues slightly increased by 7.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has increased to $145.15 million or 16.19% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 5.45%.
- 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, WESTAR ENERGY INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full Westar Energy Ratings Report.
- WPZ's revenue growth has slightly outpaced the industry average of 3.0%. Since the same quarter one year prior, revenues slightly increased by 2.4%. 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.
- 38.00% is the gross profit margin for WILLIAMS PARTNERS LP which we consider to be strong. Regardless of WPZ's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WPZ's net profit margin of 15.73% compares favorably to the industry average.
- The share price of WILLIAMS PARTNERS LP has not done very well: it is down 16.97% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Despite the decline in its share price over the last year, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry. We feel, however, that other strengths this company displays compensate for this.
- WILLIAMS PARTNERS LP 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 two years. We anticipate that this should continue in the coming year. During the past fiscal year, WILLIAMS PARTNERS LP reported lower earnings of $1.94 versus $3.68 in the prior year. For the next year, the market is expecting a contraction of 7.2% in earnings ($1.80 versus $1.94).
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Oil, Gas & Consumable Fuels industry average. The net income has significantly decreased by 25.6% when compared to the same quarter one year ago, falling from $391.00 million to $291.00 million.
- You can view the full Williams Partners Ratings Report.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- AT&T INC has improved earnings per share by 39.3% 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 year. We feel that this trend should continue. During the past fiscal year, AT&T INC increased its bottom line by earning $1.21 versus $0.66 in the prior year. This year, the market expects an improvement in earnings ($2.52 versus $1.21).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Telecommunication Services industry. The net income increased by 42.2% when compared to the same quarter one year prior, rising from -$6,678.00 million to -$3,857.00 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 1.3%. Since the same quarter one year prior, revenues slightly increased by 0.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has increased to $10,232.00 million or 36.46% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 14.26%.
- You can view the full AT&T Ratings Report.
- Our dividend calendar.