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 "Sell." Roundys (NYSE: RNDY) shares currently have a dividend yield of 7.30%. Roundy's, Inc. engages in the operation of retail grocery stores. Currently there are no analysts that rate Roundys a buy, no analysts rate it a sell, and 3 rate it a hold. The average volume for Roundys has been 486,000 shares per day over the past 30 days. Roundys has a market cap of $299.6 million and is part of the retail industry. Shares are up 47.6% year to date as of the close of trading on Thursday. TheStreet Ratings rates Roundys as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, poor profit margins and feeble growth in its earnings per share. Highlights from the ratings report include:
- 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 Food & Staples Retailing industry. The net income has significantly decreased by 1172.7% when compared to the same quarter one year ago, falling from $9.17 million to -$98.36 million.
- The debt-to-equity ratio is very high at 3.60 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.32, which clearly demonstrates the inability to cover short-term cash needs.
- The gross profit margin for ROUNDY'S INC is currently lower than what is desirable, coming in at 28.30%. Regardless of RNDY's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, RNDY's net profit margin of -10.01% significantly underperformed when compared to the industry average.
- ROUNDY'S INC 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. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ROUNDY'S INC swung to a loss, reporting -$1.54 versus $0.20 in the prior year. This year, the market expects an improvement in earnings ($0.95 versus -$1.54).
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 39.17%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 1195.00% compared to the year-earlier quarter.
- You can view the full Roundys Ratings Report.