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 "Buy." Williams Companies (NYSE: WMB) shares currently have a dividend yield of 4.30%. The Williams Companies, Inc. operates as an energy infrastructure company. The company has a P/E ratio of 37.03 The average volume for Williams Companies has been 7,486,600 shares per day over the past 30 days Williams Companies has a market cap of $22.2 billion and is part of the energy industry Shares are down 0.8% year to date as of the close of trading on Friday TheStreet Ratings rates Williams Companies as a buy. The company's strengths can be seen in multiple areas, such as its expanding profit margins, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share. Highlights from the ratings report include:
- 42.00% is the gross profit margin for WILLIAMS COS INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 8.89% is above that of the industry average.
- Net operating cash flow has increased to $495.00 million or 14.05% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -24.27%.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 13.3%. Since the same quarter one year prior, revenues fell by 10.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- 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 Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, WILLIAMS COS INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full Williams Companies Ratings Report.