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 "Hold." James Hardie Industries (NYSE: JHX) shares currently have a dividend yield of 8.40%. James Hardie Industries plc, together with its subsidiaries, manufactures and sells fiber cement products for interior and exterior building construction applications primarily in the United States, Canada, Australia, New Zealand, the Philippines, and Europe. The company has a P/E ratio of 6.38. The average volume for James Hardie Industries has been 8,500 shares per day over the past 30 days. James Hardie Industries has a market cap of $3.9 billion and is part of the materials & construction industry. Shares are down 11.3% year to date as of the close of trading on Monday. TheStreet Ratings rates James Hardie Industries as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, 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 deteriorating net income, premium valuation and weak operating cash flow. Highlights from the ratings report include:
- JHX's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 5.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- JHX has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.43, which illustrates the ability to avoid short-term cash problems.
- 35.20% is the gross profit margin for JAMES HARDIE INDUSTRIES PLC which we consider to be strong. Regardless of JHX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, JHX's net profit margin of -21.26% significantly underperformed when compared to the industry average.
- Net operating cash flow has significantly decreased to $26.00 million or 90.64% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full James Hardie Industries Ratings Report.