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." Great Northern Iron Ore (NYSE: GNI) shares currently have a dividend yield of 13.10%. Great Northern Iron Ore Properties, a conventional nonvoting trust, owns and leases mineral and non-mineral properties on the Mesabi Iron Range in northeastern Minnesota. The company has a P/E ratio of 5.77. The average volume for Great Northern Iron Ore has been 23,200 shares per day over the past 30 days. Great Northern Iron Ore has a market cap of $102.7 million and is part of the metals & mining industry. Shares are up 2.3% year to date as of the close of trading on Friday. TheStreet Ratings rates Great Northern Iron Ore as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share. Highlights from the ratings report include:
- GNI has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, GNI has a quick ratio of 1.65, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for GREAT NORTHERN IRON ORE PPTY is currently very high, coming in at 77.70%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, GNI's net profit margin of 77.69% significantly outperformed against the industry.
- The revenue fell significantly faster than the industry average of 4.5%. Since the same quarter one year prior, revenues fell by 44.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The change in net income from the same quarter one year ago has significantly exceeded that of the Metals & Mining industry average, but is less than that of the S&P 500. The net income has significantly decreased by 51.0% when compared to the same quarter one year ago, falling from $7.24 million to $3.55 million.
- In its most recent trading session, GNI has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full Great Northern Iron Ore Ratings Report.
- INTX's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, INTX has a quick ratio of 1.60, which demonstrates the ability of the company to cover short-term liquidity needs.
- 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. In comparison to the other companies in the Commercial Services & Supplies industry and the overall market, INTERSECTIONS INC's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- Net operating cash flow has increased to $10.33 million or 27.91% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -6.26%.
- The gross profit margin for INTERSECTIONS INC is rather high; currently it is at 67.90%. Regardless of INTX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.90% trails the industry average.
- You can view the full Intersections Ratings Report.
- The revenue growth greatly exceeded the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 36.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.65, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.04, which illustrates the ability to avoid short-term cash problems.
- 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. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- COMPASS DIVERSIFIED HOLDINGS 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. During the past fiscal year, COMPASS DIVERSIFIED HOLDINGS continued to lose money by earning -$0.05 versus -$0.81 in the prior year. This year, the market expects an improvement in earnings ($1.66 versus -$0.05).
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Diversified Financial Services industry and the overall market, COMPASS DIVERSIFIED HOLDINGS's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Compass Diversified Holdings Shares of Bene Ratings Report.
- Our dividend calendar.