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." Geo Group (NYSE: GEO) shares currently have a dividend yield of 5.20%. The GEO Group, Inc. provides government-outsourced services specializing in the management of correctional, detention, and re-entry facilities, and the provision of community based services and youth services in the United States, Australia, South Africa, the United Kingdom, and Canada. The company has a P/E ratio of 15.71. The average volume for Geo Group has been 973,200 shares per day over the past 30 days. Geo Group has a market cap of $2.8 billion and is part of the diversified services industry. Shares are up 37.6% year to date as of the close of trading on Monday. TheStreet Ratings rates Geo Group as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, compelling growth in net income, revenue growth, notable return on equity and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 55.9% when compared to the same quarter one year prior, rising from $15.03 million to $23.42 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.6%. Since the same quarter one year prior, revenues slightly increased by 5.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- 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 Real Estate Investment Trusts (REITs) industry and the overall market, GEO GROUP INC's return on equity exceeds that of both the industry average and the S&P 500.
- Powered by its strong earnings growth of 43.47% and other important driving factors, this stock has surged by 71.79% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, GEO should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- GEO GROUP INC has improved earnings per share by 43.5% 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 two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, GEO GROUP INC increased its bottom line by earning $2.37 versus $1.11 in the prior year. For the next year, the market is expecting a contraction of 27.4% in earnings ($1.72 versus $2.37).
- You can view the full Geo Group Ratings Report.