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 "Hold." Freeport-McMoRan Copper & Gold (NYSE: FCX) shares currently have a dividend yield of 4.10%. Freeport-McMoRan Copper & Gold Inc. engages in the exploration of mineral resource properties. The company primarily explores for copper, gold, molybdenum, cobalt, silver, and other metals, such as rhenium and magnetite. The company has a P/E ratio of 9.85. The average volume for Freeport-McMoRan Copper & Gold has been 16,531,900 shares per day over the past 30 days. Freeport-McMoRan Copper & Gold has a market cap of $28.8 billion and is part of the metals & mining industry. Shares are down 9% year to date as of the close of trading on Friday. TheStreet Ratings rates Freeport-McMoRan Copper & Gold as a hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Net operating cash flow has slightly increased to $831.00 million or 3.74% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -37.59%.
- Despite currently having a low debt-to-equity ratio of 0.56, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.47 is very high and demonstrates very strong liquidity.
- FREEPORT-MCMORAN COP&GOLD's earnings per share declined by 15.0% 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, FREEPORT-MCMORAN COP&GOLD reported lower earnings of $3.18 versus $4.77 in the prior year. This year, the market expects an improvement in earnings ($3.75 versus $3.18).
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, FCX has underperformed the S&P 500 Index, declining 20.41% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full Freeport-McMoRan Copper & Gold Ratings Report.
- The revenue growth came in higher than the industry average of 6.7%. Since the same quarter one year prior, revenues rose by 12.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has slightly increased to $34.48 million or 3.82% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -23.86%.
- 39.90% is the gross profit margin for EV ENERGY PARTNERS LP which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, EVEP's net profit margin of -13.08% significantly underperformed when compared to the industry average.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 202.3% when compared to the same quarter one year ago, falling from $9.66 million to -$9.88 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, EV ENERGY PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full EV Energy Partner Ratings Report.
- 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 Banks industry and the overall market, CANADIAN IMPERIAL BANK's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- The gross profit margin for CANADIAN IMPERIAL BANK is currently very high, coming in at 76.10%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 18.68% is above that of the industry average.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- Net operating cash flow has decreased to $1,455.00 million or 39.07% when compared to the same quarter last year. Despite a decrease in cash flow of 39.07%, CANADIAN IMPERIAL BANK is still significantly exceeding the industry average of -93.91%.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Commercial Banks industry average. The net income has decreased by 4.3% when compared to the same quarter one year ago, dropping from $832.00 million to $796.00 million.
- You can view the full Canadian Imperial Bank of Commerce Ratings Report.
- Our dividend calendar.