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 "Hold." VimpelCom (NYSE: VIP) shares currently have a dividend yield of 13.50%. VimpelCom Ltd., a telecommunications service operator, provides voice and data services through a range of traditional and broadband mobile and fixed technologies. The company has a P/E ratio of 7.59. The average volume for VimpelCom has been 1,280,700 shares per day over the past 30 days. VimpelCom has a market cap of $16.9 billion and is part of the telecommunications industry. Shares are down 0.8% year to date as of the close of trading on Wednesday. TheStreet Ratings rates VimpelCom as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, compelling growth in net income and notable return on equity. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and weak operating cash flow. Highlights from the ratings report include:
- Compared to where it was 12 months ago, this stock has enjoyed a nice rise of 26.52% which was in line with the performance of the S&P 500 Index. Although VIP had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Wireless Telecommunication Services industry average. The net income increased by 28.3% when compared to the same quarter one year prior, rising from $318.00 million to $408.00 million.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 1.7%. Since the same quarter one year prior, revenues slightly dropped by 0.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- Currently the debt-to-equity ratio of 1.89 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, VIP maintains a poor quick ratio of 0.84, which illustrates the inability to avoid short-term cash problems.
- Net operating cash flow has decreased to $1,274.00 million or 20.72% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, VIMPELCOM LTD has marginally lower results.
- You can view the full VimpelCom Ratings Report.