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 "Hold." Entergy (NYSE: ETR) shares currently have a dividend yield of 5.30%. Entergy Corporation, together with its subsidiaries, engages in the electric power production and retail electric distribution operations in the United States. The company generates electricity through various sources, such as gas/oil, nuclear, coal, and hydro power. The company has a P/E ratio of 13.10. Currently there are 2 analysts that rate Entergy a buy, 2 analysts rate it a sell, and 6 rate it a hold. The average volume for Entergy has been 1,105,600 shares per day over the past 30 days. Entergy has a market cap of $11.1 billion and is part of the utilities industry. Shares are down 3.3% year to date as of the close of trading on Monday. TheStreet Ratings rates Entergy as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, attractive valuation levels and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- 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 88.6% when compared to the same quarter one year prior, rising from $160.03 million to $301.85 million.
- ENTERGY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ENTERGY CORP reported lower earnings of $4.75 versus $7.54 in the prior year. This year, the market expects an improvement in earnings ($4.83 versus $4.75).
- The debt-to-equity ratio of 1.42 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.31, which clearly demonstrates the inability to cover short-term cash needs.
- Net operating cash flow has decreased to $720.50 million or 27.88% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Entergy Ratings Report.
- AGNC's very impressive revenue growth greatly exceeded the industry average of 16.4%. Since the same quarter one year prior, revenues leaped by 98.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- AMERICAN CAPITAL AGENCY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, AMERICAN CAPITAL AGENCY CORP reported lower earnings of $4.40 versus $5.22 in the prior year. For the next year, the market is expecting a contraction of 2.0% in earnings ($4.31 versus $4.40).
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, AMERICAN CAPITAL AGENCY CORP 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 American Capital Agency Ratings Report.
- MCY's debt-to-equity ratio is very low at 0.08 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
- MCY, with its decline in revenue, underperformed when compared the industry average of 17.7%. Since the same quarter one year prior, revenues slightly dropped by 9.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Insurance industry. The net income has significantly decreased by 121.9% when compared to the same quarter one year ago, falling from $79.47 million to -$17.38 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Insurance industry and the overall market, MERCURY GENERAL CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Mercury General Corporation Ratings Report.
- Our dividend calendar.