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." Compuware Corporation (NASDAQ: CPWR) shares currently have a dividend yield of 4.40%. Compuware Corporation provides services, software, and practices for information technology (IT) organizations worldwide. The average volume for Compuware Corporation has been 1,698,300 shares per day over the past 30 days. Compuware Corporation has a market cap of $2.4 billion and is part of the computer software & services industry. Shares are up 4% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Compuware Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures, increase in stock price during the past year and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.5%. Since the same quarter one year prior, revenues slightly increased by 0.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- Net operating cash flow has significantly increased by 58.06% to $28.65 million when compared to the same quarter last year. In addition, COMPUWARE CORP has also vastly surpassed the industry average cash flow growth rate of -12.42%.
- CPWR's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.85 is somewhat weak and could be cause for future problems.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- COMPUWARE CORP reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, COMPUWARE CORP swung to a loss, reporting -$0.08 versus $0.40 in the prior year. This year, the market expects an improvement in earnings ($0.47 versus -$0.08).
- You can view the full Compuware Corporation Ratings Report.