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 "Buy." CA (NASDAQ: CA) shares currently have a dividend yield of 4.10%. CA Technologies, together with its subsidiaries, provides enterprise information technology (IT) management software and solutions in the United States and internationally. The company operates in three segments: Mainframe Solutions, Enterprise Solutions, and Services. The company has a P/E ratio of 12.41. The average volume for CA has been 3,459,800 shares per day over the past 30 days. CA has a market cap of $11.1 billion and is part of the computer software & services industry. Shares are up 11.2% year to date as of the close of trading on Thursday. TheStreet Ratings rates CA as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, attractive valuation levels, good cash flow from operations, growth in earnings per share and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market, CA INC's return on equity exceeds that of both the industry average and the S&P 500.
- Net operating cash flow has increased to $566.00 million or 44.38% when compared to the same quarter last year. In addition, CA INC has also vastly surpassed the industry average cash flow growth rate of -15.94%.
- CA INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CA INC increased its bottom line by earning $1.91 versus $1.61 in the prior year. This year, the market expects an improvement in earnings ($2.42 versus $1.91).
- CA's debt-to-equity ratio is very low at 0.24 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 1.00 is somewhat weak and could be cause for future problems.
- You can view the full CA Ratings Report.
- 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. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- Net operating cash flow has slightly increased to $329.00 million or 5.44% when compared to the same quarter last year. Despite an increase in cash flow, AMEREN CORP's average is still marginally south of the industry average growth rate of 12.31%.
- AMEREN CORP 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 suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, AMEREN CORP swung to a loss, reporting -$4.01 versus $2.14 in the prior year. This year, the market expects an improvement in earnings ($2.10 versus -$4.01).
- AEE, with its decline in revenue, slightly underperformed the industry average of 3.4%. Since the same quarter one year prior, revenues slightly dropped by 4.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Even though the current debt-to-equity ratio is 1.03, it is still below the industry average, suggesting that this level of debt is acceptable within the Multi-Utilities industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.42 is very low and demonstrates very weak liquidity.
- You can view the full Ameren Ratings Report.
- The revenue growth greatly exceeded the industry average of 1.3%. Since the same quarter one year prior, revenues rose by 30.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- KINDER MORGAN ENERGY -LP 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 two years. We feel that this trend should continue. During the past fiscal year, KINDER MORGAN ENERGY -LP turned its bottom line around by earning $1.64 versus -$0.33 in the prior year. This year, the market expects an improvement in earnings ($2.63 versus $1.64).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 29.3% when compared to the same quarter one year prior, rising from $475.00 million to $614.00 million.
- 42.40% is the gross profit margin for KINDER MORGAN ENERGY -LP which we consider to be strong. Regardless of KMP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KMP's net profit margin of 24.46% significantly outperformed against the industry.
- 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. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full Kinder Morgan Energy Partners Ratings Report.
- Our dividend calendar.