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." Public Service Enterprise Group (NYSE: PEG) shares currently have a dividend yield of 4.20%. Public Service Enterprise Group Incorporated, through its subsidiaries, operates as an energy company primarily in the northeastern and mid Atlantic United States. The company has a P/E ratio of 13.68. Currently there is 1 analyst that rates Public Service Enterprise Group a buy, 1 analyst rates it a sell, and 8 rate it a hold. The average volume for Public Service Enterprise Group has been 3,051,400 shares per day over the past 30 days. Public Service Enterprise Group has a market cap of $17.4 billion and is part of the utilities industry. Shares are up 12.2% year to date as of the close of trading on Thursday. TheStreet Ratings rates Public Service Enterprise Group as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share. Highlights from the ratings report include:
- The debt-to-equity ratio is somewhat low, currently at 0.76, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.38 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. 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.
- PEG, with its decline in revenue, underperformed when compared the industry average of 3.4%. Since the same quarter one year prior, revenues slightly dropped by 8.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Multi-Utilities industry and the overall market on the basis of return on equity, PUBLIC SERVICE ENTRP GRP INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- The gross profit margin for PUBLIC SERVICE ENTRP GRP INC is currently lower than what is desirable, coming in at 32.90%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 9.31% is above that of the industry average.
- You can view the full Public Service Enterprise Group Ratings Report.