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." Entergy (NYSE: ETR) shares currently have a dividend yield of 4.80%. Entergy Corporation, together with its subsidiaries, engages in the electric power production and retail electric distribution operations in the United States. The company generates electricity through various sources, such as gas/oil, nuclear, coal, and hydro power. The company has a P/E ratio of 13.05. The average volume for Entergy has been 1,295,500 shares per day over the past 30 days. Entergy has a market cap of $12.2 billion and is part of the utilities industry. Shares are up 8.4% year to date as of the close of trading on Friday. TheStreet Ratings rates Entergy as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, reasonable valuation levels, notable return on equity and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electric Utilities industry. The net income increased by 213.8% when compared to the same quarter one year prior, rising from -$146.74 million to $166.98 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 14.3%. Since the same quarter one year prior, revenues slightly increased by 9.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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 Electric Utilities industry and the overall market on the basis of return on equity, ENTERGY CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- ENTERGY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ENTERGY CORP reported lower earnings of $4.75 versus $7.54 in the prior year. This year, the market expects an improvement in earnings ($4.86 versus $4.75).
- You can view the full Entergy Ratings Report.
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Media industry average. The net income increased by 39.0% when compared to the same quarter one year prior, rising from $21.17 million to $29.42 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 8.3%. Since the same quarter one year prior, revenues slightly increased by 7.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 38.29% and other important driving factors, this stock has surged by 28.13% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MDP should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The gross profit margin for MEREDITH CORP is rather high; currently it is at 61.70%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 7.95% trails the industry average.
- You can view the full Meredith Corporation Ratings Report.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 26.97% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CXW should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- CORRECTIONS CORP AMER has improved earnings per share by 7.1% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. We anticipate these figures will begin to experience more growth in the coming year. During the past fiscal year, CORRECTIONS CORP AMER increased its bottom line by earning $1.56 versus $1.55 in the prior year. This year, the market expects an improvement in earnings ($2.10 versus $1.56).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry average. The net income increased by 12.1% when compared to the same quarter one year prior, going from $40.52 million to $45.41 million.
- CXW, with its decline in revenue, underperformed when compared the industry average of 16.4%. Since the same quarter one year prior, revenues slightly dropped by 0.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full Corrections Corporation of America Ratings Report.
- Our dividend calendar.