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." Garmin (NASDAQ: GRMN) shares currently have a dividend yield of 4.90%. Garmin Ltd., together with its subsidiaries, designs, develops, manufactures, and markets global positioning system (GPS) enabled products and other navigation, communication, and information products for the automotive/mobile, outdoor, fitness, marine, and general aviation markets worldwide. The company has a P/E ratio of 13.14. The average volume for Garmin has been 1,278,000 shares per day over the past 30 days. Garmin has a market cap of $7.1 billion and is part of the electronics industry. Shares are down 10.7% year to date as of the close of trading on Friday. TheStreet Ratings rates Garmin as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and increase in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- GRMN has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 2.79, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for GARMIN LTD is rather high; currently it is at 54.30%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 16.66% significantly outperformed against the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 11.1%. Since the same quarter one year prior, revenues slightly dropped by 4.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- Net operating cash flow has significantly decreased to $59.36 million or 51.43% when compared to the same quarter last year. Despite a decrease in cash flow of 51.43%, GARMIN LTD is still significantly exceeding the industry average of -115.57%.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Household Durables industry and the overall market on the basis of return on equity, GARMIN LTD has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full Garmin Ratings Report.