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." Sun Life Financial (NYSE: SLF) shares currently have a dividend yield of 4.40%. Sun Life Financial Inc., an international financial services organization, provides a range of protection and wealth accumulation products and services to individuals and corporate customers. The company has a P/E ratio of 14.06. The average volume for Sun Life Financial has been 364,500 shares per day over the past 30 days. Sun Life Financial has a market cap of $19.1 billion and is part of the insurance industry. Shares are up 19.2% year to date as of the close of trading on Thursday. TheStreet Ratings rates Sun Life Financial as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, notable return on equity, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- Since the same quarter one year prior, revenues rose by 19.4%. 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 229.25% to $972.00 million when compared to the same quarter last year.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation.
- Compared to where it was trading one year ago, SLF is up 52.99% to its most recent closing price of 32.39. 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.
- The current debt-to-equity ratio, 0.33, is low and is below the industry average, implying that there has been successful management of debt levels.
- You can view the full Sun Life Financial Ratings Report.