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." Ameren (NYSE: AEE) shares currently have a dividend yield of 4.40%. Ameren Corporation operates as a public utility holding company in the United States. It operates in three segments: Ameren Missouri, Ameren Illinois, and Merchant Generation. The average volume for Ameren has been 1,688,600 shares per day over the past 30 days. Ameren has a market cap of $8.8 billion and is part of the utilities industry. Shares are up 17.1% year to date as of the close of trading on Monday. TheStreet Ratings rates Ameren as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, largely solid financial position with reasonable debt levels by most measures, increase in stock price during the past year and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- AEE's revenue growth has slightly outpaced the industry average of 0.1%. Since the same quarter one year prior, revenues slightly increased by 4.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving 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 Multi-Utilities industry. The net income increased by 64.0% when compared to the same quarter one year prior, rising from -$403.00 million to -$145.00 million.
- The debt-to-equity ratio is somewhat low, currently at 0.95, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.28 is very weak and demonstrates a lack of ability to pay short-term obligations.
- 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, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- AMEREN CORP has improved earnings per share by 46.7% 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, AMEREN CORP swung to a loss, reporting -$2.20 versus $2.14 in the prior year. This year, the market expects an improvement in earnings ($2.10 versus -$2.20).
- You can view the full Ameren Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 55.9% when compared to the same quarter one year prior, rising from $15.03 million to $23.42 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 12.3%. Since the same quarter one year prior, revenues slightly increased by 4.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, GEO GROUP INC's return on equity exceeds that of both the industry average and the S&P 500.
- Powered by its strong earnings growth of 43.47% and other important driving factors, this stock has surged by 51.81% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, GEO should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- You can view the full Geo Group Ratings Report.
- Since the same quarter one year prior, revenues slightly increased by 9.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has significantly increased by 192.24% to $143.20 million when compared to the same quarter last year.
- The net income increased by 13950.0% when compared to the same quarter one year prior, rising from $0.40 million to $56.20 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization.
- Compared to where it was trading one year ago, ORI is up 71.61% to its most recent closing price of 14.21. Looking ahead, although the push and pull of a bull or bear market could certainly alter the outcome, our view is that this stock's positive fundamentals give it good potential for further appreciation.
- You can view the full Old Republic International Ratings Report.
- Our dividend calendar.