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 "Hold." Verizon Communications (NYSE: VZ) shares currently have a dividend yield of 4.20%. Verizon Communications Inc., through its subsidiaries, provides communications, information and entertainment products and services to consumers, businesses, and governmental agencies worldwide. The company has a P/E ratio of 158.77. Currently there are 14 analysts that rate Verizon Communications a buy, no analysts rate it a sell, and 12 rate it a hold. The average volume for Verizon Communications has been 13,800,200 shares per day over the past 30 days. Verizon Communications has a market cap of $142.7 billion and is part of the telecommunications industry. Shares are up 14.4% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Verizon Communications as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity. Highlights from the ratings report include:
- VZ's revenue growth has slightly outpaced the industry average of 1.1%. Since the same quarter one year prior, revenues slightly increased by 5.7%. 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.
- The gross profit margin for VERIZON COMMUNICATIONS INC is rather high; currently it is at 57.70%. It has increased from the same quarter the previous year.
- Compared to its closing price of one year ago, VZ's share price has jumped by 28.46%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- 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 Diversified Telecommunication Services industry and the overall market on the basis of return on equity, VERIZON COMMUNICATIONS INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- Net operating cash flow has decreased to $6,728.00 million or 18.62% 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 Verizon Communications Ratings Report.