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 5 stocks with substantial yields, that ultimately, we have rated "Buy." TECO Energy (NYSE: TE) shares currently have a dividend yield of 4.70%. TECO Energy, Inc., an electric and gas utility holding company, engages in the regulated electric and gas utility operations. The company has a P/E ratio of 16.49. The average volume for TECO Energy has been 1,837,800 shares per day over the past 30 days. TECO Energy has a market cap of $4.1 billion and is part of the utilities industry. Shares are up 10.3% year to date as of the close of trading on Monday. TheStreet Ratings rates TECO Energy as a buy. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- TE, with its decline in revenue, slightly underperformed the industry average of 2.0%. Since the same quarter one year prior, revenues slightly dropped by 5.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Even though the current debt-to-equity ratio is 1.30, it is still below the industry average, suggesting that this level of debt is acceptable within the Multi-Utilities industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.71 is weak.
- In its most recent trading session, TE has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- The gross profit margin for TECO ENERGY INC is currently lower than what is desirable, coming in at 28.20%. Regardless of TE's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 6.27% trails the industry average.
- You can view the full TECO Energy Ratings Report.