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." Garmin (NASDAQ: GRMN) shares currently have a dividend yield of 5.10%. Garmin Ltd., together with its subsidiaries, designs, develops, manufactures, and markets global positioning system (GPS) enabled products and other navigation, communication, and information products for the automotive/mobile, outdoor, fitness, marine, and general aviation markets worldwide. The company has a P/E ratio of 12.79. The average volume for Garmin has been 1,366,100 shares per day over the past 30 days. Garmin has a market cap of $6.9 billion and is part of the electronics industry. Shares are down 13.3% year to date as of the close of trading on Monday. TheStreet Ratings rates Garmin 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 and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- GRMN 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, GRMN has a quick ratio of 2.19, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for GARMIN LTD is rather high; currently it is at 50.30%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 16.82% significantly outperformed against the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 25.1%. Since the same quarter one year prior, revenues fell by 15.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- GARMIN LTD's earnings per share declined by 22.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, GARMIN LTD increased its bottom line by earning $2.77 versus $2.67 in the prior year. For the next year, the market is expecting a contraction of 13.7% in earnings ($2.39 versus $2.77).
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, GRMN has underperformed the S&P 500 Index, declining 22.69% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full Garmin Ratings Report.
- LEXMARK INTL INC's earnings per share declined by 35.7% in the most recent quarter compared to 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, LEXMARK INTL INC reported lower earnings of $1.49 versus $4.11 in the prior year. This year, the market expects an improvement in earnings ($3.80 versus $1.49).
- LXK, with its decline in revenue, underperformed when compared the industry average of 10.4%. Since the same quarter one year prior, revenues fell by 10.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Despite currently having a low debt-to-equity ratio of 0.55, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.39 is sturdy.
- 38.80% is the gross profit margin for LEXMARK INTL INC which we consider to be strong. Regardless of LXK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LXK's net profit margin of 3.92% is significantly lower than the industry average.
- The share price of LEXMARK INTL INC has not done very well: it is down 6.60% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Despite the stock's decline during the last year, it is still somewhat more expensive (in proportion to its earnings over the last year) than most other stocks in its industry. We feel, however, that other strengths this company displays offset this slight negative.
- You can view the full Lexmark International Ratings Report.
- Net operating cash flow has increased to $1,275.10 million or 15.67% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 0.00%.
- 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 Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, ENTERPRISE PRODS PRTNRS -LP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- ENTERPRISE PRODS PRTNRS -LP's earnings per share declined by 17.1% 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, ENTERPRISE PRODS PRTNRS -LP increased its bottom line by earning $2.71 versus $2.37 in the prior year. This year, the market expects an improvement in earnings ($2.72 versus $2.71).
- EPD, with its decline in revenue, slightly underperformed the industry average of 0.7%. 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.
- 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. 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 Enterprise Products Partners Ratings Report.
- Our dividend calendar.