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 5 stocks with substantial yields, that ultimately, we have rated "Hold." Vector Group (NYSE: VGR) shares currently have a dividend yield of 9.60%. Vector Group Ltd., through its subsidiaries, engages in the manufacture and sale of cigarettes in the United States. The company operates in Tobacco and Real Estate segments. The company has a P/E ratio of 41.62. The average volume for Vector Group has been 364,200 shares per day over the past 30 days. Vector Group has a market cap of $1.5 billion and is part of the tobacco industry. Shares are up 12.9% year to date as of the close of trading on Thursday. TheStreet Ratings rates Vector Group as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, expanding profit margins and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and relatively poor performance when compared with the S&P 500 during the past year. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Tobacco industry. The net income increased by 78.1% when compared to the same quarter one year prior, rising from -$7.69 million to -$1.68 million.
- The gross profit margin for VECTOR GROUP LTD is rather high; currently it is at 53.27%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -1.27% is in-line with the industry average.
- VGR, with its decline in revenue, slightly underperformed the industry average of 6.1%. Since the same quarter one year prior, revenues slightly dropped by 3.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- In its most recent trading session, VGR has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
- Net operating cash flow has significantly decreased to -$9.92 million or 124.44% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Vector Group Ratings Report.