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 4 stocks with substantial yields, that ultimately, we have rated "Hold." Windstream (NASDAQ: WIN) shares currently have a dividend yield of 12.10%. Windstream Corporation provides communications and technology solutions in the United States. The company offers managed services and cloud computing services to businesses, as well as broadband, voice, and video services to consumers primarily in rural markets. The company has a P/E ratio of 34.33. The average volume for Windstream has been 7,399,000 shares per day over the past 30 days. Windstream has a market cap of $4.9 billion and is part of the telecommunications industry. Shares are down 1% year to date as of the close of trading on Friday. TheStreet Ratings rates Windstream as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- Net operating cash flow has slightly increased to $408.00 million or 2.51% when compared to the same quarter last year. In addition, WINDSTREAM CORP has also modestly surpassed the industry average cash flow growth rate of -5.02%.
- The gross profit margin for WINDSTREAM CORP is rather high; currently it is at 53.71%. 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 2.63% trails the industry average.
- 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 other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, WINDSTREAM CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Diversified Telecommunication Services industry. The net income has significantly decreased by 26.8% when compared to the same quarter one year ago, falling from $54.20 million to $39.70 million.
- The debt-to-equity ratio is very high at 9.45 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, WIN has a quick ratio of 0.53, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full Windstream Ratings Report.