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." Verizon Communications (NYSE: VZ) shares currently have a dividend yield of 4.10%. Verizon Communications Inc., through its subsidiaries, provides communications, information and entertainment products and services to consumers, businesses, and governmental agencies worldwide. The company has a P/E ratio of 124.75. The average volume for Verizon Communications has been 12,958,000 shares per day over the past 30 days. Verizon Communications has a market cap of $148.1 billion and is part of the telecommunications industry. Shares are up 17% year to date as of the close of trading on Thursday. TheStreet Ratings rates Verizon Communications as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, good cash flow from operations, expanding profit margins 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:
- VZ's revenue growth has slightly outpaced the industry average of 0.4%. Since the same quarter one year prior, revenues slightly increased by 4.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Diversified Telecommunication Services industry average. The net income increased by 15.8% when compared to the same quarter one year prior, going from $1,686.00 million to $1,952.00 million.
- Net operating cash flow has increased to $7,531.00 million or 26.42% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 12.56%.
- The gross profit margin for VERIZON COMMUNICATIONS INC is rather high; currently it is at 62.80%. 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 6.63% trails the industry average.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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.
- You can view the full Verizon Communications Ratings Report.
- The debt-to-equity ratio is somewhat low, currently at 0.76, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that PEG's debt-to-equity ratio is low, the quick ratio, which is currently 0.55, displays a potential problem in covering short-term cash needs.
- PEG, with its decline in revenue, slightly underperformed the industry average of 0.0%. Since the same quarter one year prior, revenues slightly dropped by 3.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- In its most recent trading session, PEG has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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 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 Multi-Utilities industry and the overall market on the basis of return on equity, PUBLIC SERVICE ENTRP GRP INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Net operating cash flow has decreased to $877.00 million or 19.39% when compared to the same quarter last year. Despite a decrease in cash flow of 19.39%, PUBLIC SERVICE ENTRP GRP INC is in line with the industry average cash flow growth rate of -20.26%.
- You can view the full Public Service Enterprise Group Ratings Report.
- Since the same quarter one year prior, revenues slightly increased by 9.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has significantly increased by 192.24% to $143.20 million when compared to the same quarter last year.
- The net income increased by 13950.0% when compared to the same quarter one year prior, rising from $0.40 million to $56.20 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization.
- Compared to where it was trading one year ago, ORI is up 32.26% to its most recent closing price of 13.20. Looking ahead, although the push and pull of a bull or bear market could certainly alter the outcome, our view is that this stock's positive fundamentals give it good potential for further appreciation.
- You can view the full Old Republic International Ratings Report.
- Our dividend calendar.