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." Pzena Investment Management (NYSE: PZN) shares currently have a dividend yield of 10.50%. Pzena Investment Management, Inc. is a publicly owned investment manager. The company has a P/E ratio of 19.00. The average volume for Pzena Investment Management has been 32,100 shares per day over the past 30 days. Pzena Investment Management has a market cap of $67.2 million and is part of the financial services industry. Shares are up 13.3% year to date as of the close of trading on Friday. TheStreet Ratings rates Pzena Investment Management as a hold. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- PZENA INVESTMENT MANAGEMENT reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, PZENA INVESTMENT MANAGEMENT increased its bottom line by earning $0.32 versus $0.28 in the prior year. This year, the market expects an improvement in earnings ($0.38 versus $0.32).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 159.1% when compared to the same quarter one year prior, rising from $0.37 million to $0.96 million.
- 49.10% is the gross profit margin for PZENA INVESTMENT MANAGEMENT which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, PZN's net profit margin of 4.95% significantly trails the industry average.
- PZN has underperformed the S&P 500 Index, declining 6.47% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Net operating cash flow has significantly decreased to -$1.29 million or 176.76% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Pzena Investment Management Ratings Report.