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." Dupont Fabros Technology (NYSE: DFT) shares currently have a dividend yield of 4.30%. DuPont Fabros Technology, Inc., a real estate investment trust (REIT), engages in the ownership, acquisition, development, operation, management, and lease of large-scale data center facilities in the United States. The company has a P/E ratio of 51.96. The average volume for Dupont Fabros Technology has been 868,400 shares per day over the past 30 days. Dupont Fabros Technology has a market cap of $1.5 billion and is part of the real estate industry. Shares are down 2.2% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Dupont Fabros Technology as a buy. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth, reasonable valuation levels, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 25.2% when compared to the same quarter one year prior, rising from $11.79 million to $14.75 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 12.0%. Since the same quarter one year prior, revenues rose by 12.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has increased to $47.81 million or 18.95% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -16.35%.
- 36.80% is the gross profit margin for DUPONT FABROS TECHNOLOGY INC which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, DFT's net profit margin of 16.80% significantly trails the industry average.
- You can view the full Dupont Fabros Technology Ratings Report.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 30.60% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, LMT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- LOCKHEED MARTIN CORP has improved earnings per share by 15.3% 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, LOCKHEED MARTIN CORP increased its bottom line by earning $8.34 versus $7.86 in the prior year. This year, the market expects an improvement in earnings ($9.00 versus $8.34).
- 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 Aerospace & Defense industry and the overall market, LOCKHEED MARTIN CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Net operating cash flow has significantly increased by 355.24% to $2,085.00 million when compared to the same quarter last year. In addition, LOCKHEED MARTIN CORP has also vastly surpassed the industry average cash flow growth rate of 1.10%.
- LMT, with its decline in revenue, slightly underperformed the industry average of 4.3%. Since the same quarter one year prior, revenues slightly dropped by 2.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full Lockheed Martin Corporation Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Tobacco industry. The net income increased by 88.1% when compared to the same quarter one year prior, rising from $270.00 million to $508.00 million.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Tobacco industry and the overall market, REYNOLDS AMERICAN INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for REYNOLDS AMERICAN INC is rather high; currently it is at 63.10%. It has increased significantly from the same period last year. Along with this, the net profit margin of 26.97% is above that of the industry average.
- The debt-to-equity ratio is somewhat low, currently at 0.99, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.72 is somewhat weak and could be cause for future problems.
- REYNOLDS AMERICAN INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, REYNOLDS AMERICAN INC reported lower earnings of $2.24 versus $2.41 in the prior year. This year, the market expects an improvement in earnings ($3.22 versus $2.24).
- You can view the full Reynolds American Ratings Report.
- Our dividend calendar.