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 4 stocks with substantial yields, that ultimately, we have rated "Hold." Cypress Semiconductor Corporation (NASDAQ: CY) shares currently have a dividend yield of 4.10%. Cypress Semiconductor Corporation, together with its subsidiaries, designs, develops, manufactures, and markets mixed-signal, programmable solutions, specialized semiconductor memories, and integrated semiconductor solutions. The average volume for Cypress Semiconductor Corporation has been 2,919,300 shares per day over the past 30 days. Cypress Semiconductor Corporation has a market cap of $1.6 billion and is part of the electronics industry. Shares are down 0.5% year to date as of the close of trading on Friday. TheStreet Ratings rates Cypress Semiconductor Corporation as a hold. Among the primary strengths of the company is its expanding profit margins over time. At the same time, however, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity. Highlights from the ratings report include:
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 15.4%. Since the same quarter one year prior, revenues slightly dropped by 6.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The gross profit margin for CYPRESS SEMICONDUCTOR CORP is rather high; currently it is at 54.30%. Regardless of CY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CY's net profit margin of -16.32% significantly underperformed when compared to the industry average.
- CYPRESS SEMICONDUCTOR CORP's earnings per share declined by 46.1% in the most recent quarter compared to 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, CYPRESS SEMICONDUCTOR CORP swung to a loss, reporting -$0.16 versus $0.89 in the prior year. This year, the market expects an improvement in earnings ($0.43 versus -$0.16).
- Currently the debt-to-equity ratio of 1.64 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. To add to this, CY has a quick ratio of 0.61, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, CYPRESS SEMICONDUCTOR CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Cypress Semiconductor Corporation Ratings Report.