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." Barrick Gold Corporation (NYSE: ABX) shares currently have a dividend yield of 5.70%. Barrick Gold Corporation engages in the production and sale of gold and copper. It is also involved in exploration and mine development activities. The average volume for Barrick Gold Corporation has been 21,940,400 shares per day over the past 30 days. Barrick Gold Corporation has a market cap of $14.0 billion and is part of the metals & mining industry. Shares are down 60% year to date as of the close of trading on Thursday. TheStreet Ratings rates Barrick Gold Corporation as a hold. The company's strengths can be seen in multiple areas, such as its expanding profit margins and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- The gross profit margin for BARRICK GOLD CORP is rather high; currently it is at 56.04%. Regardless of ABX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ABX's net profit margin of 24.64% significantly outperformed against the industry.
- ABX, with its decline in revenue, slightly underperformed the industry average of 1.8%. Since the same quarter one year prior, revenues slightly dropped by 5.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- BARRICK GOLD CORP's earnings per share declined by 18.3% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, BARRICK GOLD CORP swung to a loss, reporting -$0.65 versus $4.48 in the prior year.
- 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 Metals & Mining industry and the overall market on the basis of return on equity, BARRICK GOLD CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Barrick Gold Corporation Ratings Report.