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.
- REGAL ENTERTAINMENT GROUP has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, REGAL ENTERTAINMENT GROUP increased its bottom line by earning $0.93 versus $0.27 in the prior year. This year, the market expects an improvement in earnings ($1.01 versus $0.93).
- RGC, with its decline in revenue, slightly underperformed the industry average of 1.6%. Since the same quarter one year prior, revenues slightly dropped by 6.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Compared to its closing price of one year ago, RGC's share price has jumped by 37.65%, exceeding the performance of the broader market during that same time frame. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
- Net operating cash flow has declined marginally to $110.90 million or 5.61% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, REGAL ENTERTAINMENT GROUP has marginally lower results.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Media industry. The net income has significantly decreased by 51.4% when compared to the same quarter one year ago, falling from $46.30 million to $22.50 million.
- You can view the full Regal Entertainment Group Ratings Report.
- 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 other companies in the Commercial Services & Supplies industry and the overall market, PITNEY BOWES INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Net operating cash flow has increased to $132.16 million or 37.67% when compared to the same quarter last year. In addition, PITNEY BOWES INC has also vastly surpassed the industry average cash flow growth rate of -21.76%.
- The gross profit margin for PITNEY BOWES INC is rather high; currently it is at 55.10%. Regardless of PBI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PBI's net profit margin of 5.78% compares favorably to the industry average.
- The debt-to-equity ratio is very high at 55.10 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, PBI's quick ratio is somewhat strong at 1.04, demonstrating the ability to handle short-term liquidity needs.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Commercial Services & Supplies industry. The net income has significantly decreased by 57.5% when compared to the same quarter one year ago, falling from $158.67 million to $67.51 million.
- You can view the full Pitney Bowes Ratings Report.
- Our dividend calendar.