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 "Hold." ArcelorMittal (NYSE: MT) shares currently have a dividend yield of 5.40%. ArcelorMittal, together with its subsidiaries, operates as an integrated steel and mining company worldwide. The company operates through six segments: Flat Carbon Americas; Flat Carbon Europe; Long Carbon Americas and Europe; Asia, Africa, and CIS; Distribution Solutions; and Mining. The average volume for ArcelorMittal has been 7,673,600 shares per day over the past 30 days. ArcelorMittal has a market cap of $19.7 billion and is part of the metals & mining industry. Shares are down 28.6% year to date as of the close of trading on Thursday. TheStreet Ratings rates ArcelorMittal as a hold. Among the primary strengths of the company is its generally strong cash flow from operations. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins. Highlights from the ratings report include:
- Net operating cash flow has increased to $3,327.00 million or 15.60% when compared to the same quarter last year. In addition, ARCELORMITTAL SA has also vastly surpassed the industry average cash flow growth rate of -37.59%.
- MT, with its decline in revenue, slightly underperformed the industry average of 4.0%. Since the same quarter one year prior, revenues fell by 14.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- ARCELORMITTAL SA has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, ARCELORMITTAL SA swung to a loss, reporting -$2.47 versus $0.86 in the prior year. This year, the market expects an improvement in earnings ($0.46 versus -$2.47).
- The gross profit margin for ARCELORMITTAL SA is currently extremely low, coming in at 2.20%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -20.64% is significantly below that of 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 Metals & Mining industry. The net income has significantly decreased by 298.7% when compared to the same quarter one year ago, falling from -$1,000.00 million to -$3,987.00 million.
- You can view the full ArcelorMittal Ratings Report.