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 4 stocks with substantial yields, that ultimately, we have rated "Hold." Ambassadors Group (NASDAQ: EPAX) shares currently have a dividend yield of 7.20%. Ambassadors Group, Inc. provides educational travel experiences and online education research materials worldwide. Its Ambassador Programs and Other segment offers educational travel services to students and professionals. The company has a P/E ratio of 33.50. The average volume for Ambassadors Group has been 46,100 shares per day over the past 30 days. Ambassadors Group has a market cap of $56.8 million and is part of the diversified services industry. Shares are down 22.8% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Ambassadors Group as a hold. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- EPAX 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. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.30, which illustrates the ability to avoid short-term cash problems.
- The revenue fell significantly faster than the industry average of 3.0%. Since the same quarter one year prior, revenues fell by 31.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- AMBASSADORS GROUP INC's earnings per share declined by 28.9% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AMBASSADORS GROUP INC reported lower earnings of $0.09 versus $0.16 in the prior year. This year, the market expects an improvement in earnings ($0.11 versus $0.09).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 28.7% when compared to the same quarter one year ago, falling from -$7.80 million to -$10.03 million.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 36.86%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 28.88% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- You can view the full Ambassadors Group Ratings Report.