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." DineEquity (NYSE: DIN) shares currently have a dividend yield of 4.20%. DineEquity, Inc., through its subsidiaries, develops, franchises, and operates full-service restaurant chains in the United States and internationally. The company has a P/E ratio of 12.05. The average volume for DineEquity has been 182,500 shares per day over the past 30 days. DineEquity has a market cap of $1.4 billion and is part of the leisure industry. Shares are up 7.8% year to date as of the close of trading on Monday. TheStreet Ratings rates DineEquity as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, reasonable valuation levels, good cash flow from operations, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- Compared to its closing price of one year ago, DIN's share price has jumped by 40.08%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, DIN should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- Net operating cash flow has significantly increased by 59.36% to $71.23 million when compared to the same quarter last year. In addition, DINEEQUITY INC has also vastly surpassed the industry average cash flow growth rate of -5.13%.
- The gross profit margin for DINEEQUITY INC is rather high; currently it is at 61.40%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 11.17% trails the industry average.
- The revenue fell significantly faster than the industry average of 3.5%. Since the same quarter one year prior, revenues fell by 33.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full DineEquity Ratings Report.