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." Consolidated Communications (NASDAQ: CNSL) shares currently have a dividend yield of 8.40%. Consolidated Communications Holdings, Inc., together with its subsidiaries, provides telecommunications services to residential and business customers in Illinois, Texas, Pennsylvania, California, Kansas, and Missouri. The company has a P/E ratio of 71.15. The average volume for Consolidated Communications has been 200,700 shares per day over the past 30 days. Consolidated Communications has a market cap of $742.1 million and is part of the telecommunications industry. Shares are up 16.3% year to date as of the close of trading on Thursday. TheStreet Ratings rates Consolidated Communications as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and disappointing return on equity. Highlights from the ratings report include:
- CNSL's very impressive revenue growth greatly exceeded the industry average of 0.8%. Since the same quarter one year prior, revenues leaped by 67.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Telecommunication Services industry. The net income increased by 285.6% when compared to the same quarter one year prior, rising from $1.76 million to $6.78 million.
- CONSOLIDATED COMM HLDGS INC 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, CONSOLIDATED COMM HLDGS INC reported lower earnings of $0.17 versus $0.88 in the prior year. This year, the market expects an improvement in earnings ($0.80 versus $0.17).
- 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 Diversified Telecommunication Services industry and the overall market on the basis of return on equity, CONSOLIDATED COMM HLDGS INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- The debt-to-equity ratio is very high at 9.60 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, CNSL has a quick ratio of 0.55, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full Consolidated Communications Ratings Report.