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." Dominion Resources (NYSE: D) shares currently have a dividend yield of 4.10%. Dominion Resources, Inc., together with its subsidiaries, engages in producing and transporting energy in the United States. The company operates through three segments: Dominion Virginia Power (DVP), Dominion Generation, and Dominion Energy. The company has a P/E ratio of 101.20. The average volume for Dominion Resources has been 2,485,500 shares per day over the past 30 days. Dominion Resources has a market cap of $31.5 billion and is part of the utilities industry. Shares are up 6.8% year to date as of the close of trading on Thursday. TheStreet Ratings rates Dominion Resources as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income and increase in stock price during the past year. 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:
- D's revenue growth has slightly outpaced the industry average of 0.0%. Since the same quarter one year prior, revenues slightly increased by 3.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Multi-Utilities industry average. The net income increased by 0.2% when compared to the same quarter one year prior, going from $494.00 million to $495.00 million.
- DOMINION RESOURCES INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, DOMINION RESOURCES INC reported lower earnings of $0.58 versus $2.48 in the prior year. This year, the market expects an improvement in earnings ($3.35 versus $0.58).
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- The gross profit margin for DOMINION RESOURCES INC is currently lower than what is desirable, coming in at 34.80%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 14.05% is above that of the industry average.
- You can view the full Dominion Resources Ratings Report.
- FLOWERS FOODS INC reported significant earnings per share improvement 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 year. We feel that this trend should continue. During the past fiscal year, FLOWERS FOODS INC increased its bottom line by earning $0.99 versus $0.91 in the prior year. This year, the market expects an improvement in earnings ($1.44 versus $0.99).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Food Products industry. The net income increased by 198.5% when compared to the same quarter one year prior, rising from $37.94 million to $113.28 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 34.9%. Since the same quarter one year prior, revenues rose by 25.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 48.20% is the gross profit margin for FLOWERS FOODS INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 10.01% trails the industry average.
- Net operating cash flow has increased to $86.83 million or 44.44% when compared to the same quarter last year. Despite an increase in cash flow of 44.44%, FLOWERS FOODS INC is still growing at a significantly lower rate than the industry average of 189.97%.
- You can view the full Flowers Foods Ratings Report.
- The revenue growth came in higher than the industry average of 10.6%. Since the same quarter one year prior, revenues slightly increased by 2.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry average. The net income increased by 2.1% when compared to the same quarter one year prior, going from $333.00 million to $340.00 million.
- Net operating cash flow has slightly increased to $582.00 million or 6.59% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -25.50%.
- 43.60% is the gross profit margin for SPECTRA ENERGY CORP which we consider to be strong. Regardless of SE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SE's net profit margin of 21.39% significantly outperformed against the industry.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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.
- You can view the full Spectra Energy Ratings Report.
- Our dividend calendar.