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." Telefonica Brasil S.A (NYSE: VIV) shares currently have a dividend yield of 7.20%. Telefonica Brasil S.A. provides fixed-line telecommunications services to residential and commercial customers in Brazil. The company has a P/E ratio of 6.48 The average volume for Telefonica Brasil S.A has been 1,214,100 shares per day over the past 30 days Telefonica Brasil S.A has a market cap of $24.1 billion and is part of the telecommunications industry Shares are down 10.7% year to date as of the close of trading on Tuesday TheStreet Ratings rates Telefonica Brasil S.A as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, attractive valuation levels and expanding profit margins. 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:
- VIV's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.11, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for TELEFONICA BRASIL SA is rather high; currently it is at 60.88%. Regardless of VIV's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VIV's net profit margin of 9.46% compares favorably to the industry average.
- VIV, with its decline in revenue, slightly underperformed the industry average of 0.8%. Since the same quarter one year prior, revenues slightly dropped by 7.3%. Weakness in the company's revenue seems to have hurt the 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 Diversified Telecommunication Services industry and the overall market on the basis of return on equity, TELEFONICA BRASIL SA 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 Telefonica Brasil S.A Ratings Report.