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.