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 4 stocks with substantial yields, that ultimately, we have rated "Sell." Alteva (NASDAQ: ALTV) shares currently have a dividend yield of 10.60%. Alteva, Inc. provides cloud-based unified communications solutions for small, medium, and enterprise businesses. The average volume for Alteva has been 19,800 shares per day over the past 30 days. Alteva has a market cap of $63.0 million and is part of the telecommunications industry. Shares are down 5.3% year to date as of the close of trading on Thursday. TheStreet Ratings rates Alteva as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- The debt-to-equity ratio of 1.18 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, ALTV has a quick ratio of 0.61, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Diversified Telecommunication Services industry and the overall market, ALTEVA's return on equity significantly trails that of both the industry average and the S&P 500.
- ALTV has underperformed the S&P 500 Index, declining 23.08% 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.
- ALTEVA has improved earnings per share by 31.8% 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, ALTEVA reported poor results of -$1.67 versus -$0.54 in the prior year. This year, the market expects an improvement in earnings ($0.09 versus -$1.67).
- The gross profit margin for ALTEVA is rather high; currently it is at 51.10%. 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 -10.76% is in-line with the industry average.
- You can view the full Alteva Ratings Report.