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 5 stocks with substantial yields, that ultimately, we have rated "Hold." Greenhill (NYSE: GHL) shares currently have a dividend yield of 4.10%. Greenhill & Co., Inc., an independent investment bank, provides financial advice on mergers, acquisitions, restructurings, financings, and capital raising to corporations, partnerships, institutions, and governments worldwide. The company has a P/E ratio of 33.58 The average volume for Greenhill has been 339,000 shares per day over the past 30 days Greenhill has a market cap of $1.2 billion and is part of the financial services industry Shares are down 14.3% year to date as of the close of trading on Tuesday TheStreet Ratings rates Greenhill as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, solid stock price performance and notable return on equity. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Net operating cash flow has significantly increased by 159.05% to $16.18 million when compared to the same quarter last year. In addition, GREENHILL & CO INC has also vastly surpassed the industry average cash flow growth rate of -303.26%.
- Compared to its closing price of one year ago, GHL's share price has jumped by 31.00%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 6.3%. Since the same quarter one year prior, revenues slightly dropped by 3.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Capital Markets industry average. The net income has decreased by 15.6% when compared to the same quarter one year ago, dropping from $16.14 million to $13.62 million.
- The gross profit margin for GREENHILL & CO INC is currently lower than what is desirable, coming in at 29.80%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 17.10% trails that of the industry average.
- You can view the full Greenhill Ratings Report.