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." Freeport-McMoRan Copper & Gold (NYSE: FCX) shares currently have a dividend yield of 4.50%. 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 8.86 The average volume for Freeport-McMoRan Copper & Gold has been 20,239,700 shares per day over the past 30 days Freeport-McMoRan Copper & Gold has a market cap of $26.2 billion and is part of the metals & mining industry Shares are down 17.3% year to date as of the close of trading on Monday 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 feeble growth in the company's earnings per share and a generally disappointing performance in the stock itself. 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 -26.76%.
- 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.
- 41.09% 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.
- 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 15.06% 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.
- 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. Earnings per share have declined over the last two years. We anticipate that this should continue 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. For the next year, the market is expecting a contraction of 5.0% in earnings ($3.02 versus $3.18).
- You can view the full Freeport-McMoRan Copper & Gold Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 192.4% when compared to the same quarter one year prior, rising from $5,767.00 million to $16,863.00 million.
- The current debt-to-equity ratio, 0.36, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.90 is somewhat weak and could be cause for future problems.
- The gross profit margin for BP PLC is currently extremely low, coming in at 14.50%. Regardless of BP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, BP's net profit margin of 17.91% compares favorably to the industry average.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, BP PLC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full BP Ratings Report.
- Net operating cash flow has significantly increased by 178.46% to $2,598.00 million when compared to the same quarter last year. In addition, BANK OF MONTREAL has also vastly surpassed the industry average cash flow growth rate of 14.07%.
- 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.7%. Since the same quarter one year prior, revenues slightly dropped by 1.5%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Commercial Banks industry and the overall market, BANK OF MONTREAL's return on equity exceeds that of both the industry average and the S&P 500.
- 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 Commercial Banks industry average. The net income has decreased by 5.2% when compared to the same quarter one year ago, dropping from $1,010.00 million to $957.00 million.
- You can view the full Bank of Montreal Ratings Report.
- TWO's very impressive revenue growth greatly exceeded the industry average of 7.7%. Since the same quarter one year prior, revenues leaped by 101.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- TWO HARBORS INVESTMENT CORP reported significant earnings per share improvement 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, TWO HARBORS INVESTMENT CORP reported lower earnings of $1.11 versus $1.27 in the prior year. This year, the market expects an improvement in earnings ($1.25 versus $1.11).
- 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, TWO HARBORS INVESTMENT CORP's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$20.48 million or 156.49% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Two Harbors Investment Ratings Report.
- Our dividend calendar.