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 "Hold." Freeport-McMoRan Copper & Gold (NYSE: FCX) shares currently have a dividend yield of 4.20%. Freeport-McMoRan Copper & Gold Inc. engages in the exploration of mineral resource properties. The company primarily explores for copper, gold, molybdenum, cobalt, silver, and other metals, such as rhenium and magnetite. The company has a P/E ratio of 9.58. The average volume for Freeport-McMoRan Copper & Gold has been 19,177,100 shares per day over the past 30 days. Freeport-McMoRan Copper & Gold has a market cap of $28.0 billion and is part of the metals & mining industry. Shares are down 14.6% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Freeport-McMoRan Copper & Gold as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Net operating cash flow has slightly increased to $831.00 million or 3.74% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -24.83%.
- Despite currently having a low debt-to-equity ratio of 0.56, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.47 is very high and demonstrates very strong liquidity.
- 41.10% is the gross profit margin for FREEPORT-MCMORAN COP&GOLD which we consider to be strong. Regardless of FCX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, FCX's net profit margin of 14.13% compares favorably to the industry average.
- FREEPORT-MCMORAN COP&GOLD's earnings per share declined by 15.0% 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, FREEPORT-MCMORAN COP&GOLD reported lower earnings of $3.18 versus $4.77 in the prior year. This year, the market expects an improvement in earnings ($3.30 versus $3.18).
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, FCX has underperformed the S&P 500 Index, declining 10.92% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full Freeport-McMoRan Copper & Gold Ratings Report.