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." Sun Life Financial (NYSE: SLF) shares currently have a dividend yield of 4.70%. Sun Life Financial Inc., an international financial services organization, provides a range of protection and wealth accumulation products and services to individuals and corporate customers. The company has a P/E ratio of 13.22. The average volume for Sun Life Financial has been 426,900 shares per day over the past 30 days. Sun Life Financial has a market cap of $17.9 billion and is part of the insurance industry. Shares are up 13.2% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Sun Life Financial as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, notable return on equity, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- Since the same quarter one year prior, revenues rose by 19.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- Net operating cash flow has significantly increased by 229.25% to $972.00 million when compared to the same quarter last 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 where it was trading one year ago, SLF is up 40.13% to its most recent closing price of 29.54. 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.
- The current debt-to-equity ratio, 0.33, is low and is below the industry average, implying that there has been successful management of debt levels.
- You can view the full Sun Life Financial Ratings Report.
- RDS.B's debt-to-equity ratio is very low at 0.20 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.85 is somewhat weak and could be cause for future problems.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.6%. Since the same quarter one year prior, revenues slightly dropped by 5.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- In its most recent trading session, RDS.B 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 gross profit margin for ROYAL DUTCH SHELL PLC is rather low; currently it is at 17.50%. Regardless of RDS.B's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.24% trails the industry average.
- You can view the full Royal Dutch Shell Ratings Report.
- The strong earnings growth this company has enjoyed -- up -- has apparently played a role in driving up its share price by a solid 28.13%. In addition, the rise in the general market has likely contributed to this stock's strong performance during this past year.Regarding the stock's future course, although almost any stock can fall in a broad market decline, CXW should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- CORRECTIONS CORP AMER reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. We anticipate these figures will begin to experience more growth in the coming year. During the past fiscal year, CORRECTIONS CORP AMER increased its bottom line by earning $1.56 versus $1.55 in the prior year. This year, the market expects an improvement in earnings ($1.93 versus $1.56).
- 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 471.6% when compared to the same quarter one year prior, rising from $31.68 million to $181.09 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. In comparison to the other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CORRECTIONS CORP AMER's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- You can view the full Corrections Corporation of America Ratings Report.
- Our dividend calendar.