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." Altria Group (NYSE: MO) shares currently have a dividend yield of 4.70%. Altria Group, Inc., through its subsidiaries, engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. The company has a P/E ratio of 17.29. The average volume for Altria Group has been 10,453,100 shares per day over the past 30 days. Altria Group has a market cap of $75.0 billion and is part of the tobacco industry. Shares are up 17.4% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Altria Group as a buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, notable return on equity, increase in stock price during the past year, expanding profit margins and compelling growth in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated. Highlights from the ratings report include:
- ALTRIA GROUP INC has improved earnings per share by 16.9% 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. We feel that this trend should continue. During the past fiscal year, ALTRIA GROUP INC increased its bottom line by earning $2.06 versus $1.64 in the prior year. This year, the market expects an improvement in earnings ($2.39 versus $2.06).
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Tobacco industry and the overall market, ALTRIA GROUP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. 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 ALTRIA GROUP INC is rather high; currently it is at 56.40%. Regardless of MO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MO's net profit margin of 34.86% compares favorably to the industry average.
- MO, with its decline in revenue, slightly underperformed the industry average of 6.9%. Since the same quarter one year prior, revenues slightly dropped by 0.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full Altria Group Ratings Report.
- The revenue growth came in higher than the industry average of 3.1%. Since the same quarter one year prior, revenues rose by 31.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 41.70% and other important driving factors, this stock has surged by 70.24% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, SIX FLAGS ENTERTAINMENT CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Net operating cash flow has increased to -$36.94 million or 13.63% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -1.91%.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income increased by 45.7% when compared to the same quarter one year prior, rising from -$115.11 million to -$62.53 million.
- You can view the full Six Flags Entertainment Ratings Report.
- The revenue growth greatly exceeded the industry average of 1.7%. Since the same quarter one year prior, revenues rose by 34.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.92, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Multi-Utilities industry. The net income increased by 88.9% when compared to the same quarter one year prior, rising from $99.70 million to $188.30 million.
- Net operating cash flow has increased to $319.60 million or 41.54% when compared to the same quarter last year. In addition, INTEGRYS ENERGY GROUP INC has also vastly surpassed the industry average cash flow growth rate of -20.81%.
- You can view the full Integrys Energy Group Ratings Report.
- Our dividend calendar.