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 3 stocks with substantial yields, that ultimately, we have rated "Buy." Williams Companies (NYSE: WMB) shares currently have a dividend yield of 4.20%. The Williams Companies, Inc. operates as an energy infrastructure company. The company has a P/E ratio of 36.85. The average volume for Williams Companies has been 7,615,300 shares per day over the past 30 days. Williams Companies has a market cap of $22.9 billion and is part of the energy industry. Shares are up 1.3% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Williams Companies as a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins 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:
- 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 -25.63%.
- 41.99% 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. Regardless of the strong results of the gross profit margin, the net profit margin of 8.89% trails the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.7%. 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.
- WILLIAMS COS INC's earnings per share declined by 48.9% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, WILLIAMS COS INC reported lower earnings of $1.16 versus $1.35 in the prior year. For the next year, the market is expecting a contraction of 35.3% in earnings ($0.75 versus $1.16).
- You can view the full Williams Companies Ratings Report.