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." American Electric Power (NYSE: AEP) shares currently have a dividend yield of 4.50%. American Electric Power Company, Inc., a public utility holding company, engages in the generation, transmission, and distribution of electric power to retail customers. The company generates electricity using coal and lignite, natural gas, nuclear energy, and hydroelectric energy. The company has a P/E ratio of 17.58. The average volume for American Electric Power has been 3,564,900 shares per day over the past 30 days. American Electric Power has a market cap of $21.3 billion and is part of the utilities industry. Shares are up 1.5% year to date as of the close of trading on Friday. TheStreet Ratings rates American Electric Power as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- AEP's revenue growth trails the industry average of 17.1%. Since the same quarter one year prior, revenues slightly increased by 0.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- AMERICAN ELECTRIC POWER CO's earnings per share declined by 8.0% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, AMERICAN ELECTRIC POWER CO reported lower earnings of $2.60 versus $3.24 in the prior year. This year, the market expects an improvement in earnings ($3.15 versus $2.60).
- In its most recent trading session, AEP 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. 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.
- The change in net income from the same quarter one year ago has exceeded that of the Electric Utilities industry average, but is less than that of the S&P 500. The net income has decreased by 6.6% when compared to the same quarter one year ago, dropping from $362.00 million to $338.00 million.
- Even though the current debt-to-equity ratio is 1.23, it is still below the industry average, suggesting that this level of debt is acceptable within the Electric Utilities industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.35 is very low and demonstrates very weak liquidity.
- You can view the full American Electric Power Ratings Report.
- INTC's debt-to-equity ratio is very low at 0.25 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, INTC has a quick ratio of 1.83, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for INTEL CORP is currently very high, coming in at 73.30%. Regardless of INTC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 15.61% trails the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 12.9%. Since the same quarter one year prior, revenues slightly dropped by 5.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, INTEL CORP's return on equity exceeds that of both the industry average and the S&P 500.
- You can view the full Intel Ratings Report.
- KKR's very impressive revenue growth greatly exceeded the industry average of 12.5%. Since the same quarter one year prior, revenues leaped by 79.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Compared to its closing price of one year ago, KKR's share price has jumped by 34.22%, exceeding the performance of the broader market during that same time frame. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
- 42.05% is the gross profit margin for KKR & CO LP which we consider to be strong. It has increased significantly from the same period last year. Despite the strong results of the gross profit margin, KKR's net profit margin of 3.00% significantly trails the industry average.
- KKR & CO LP has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, KKR & CO LP increased its bottom line by earning $2.23 versus $0.04 in the prior year. For the next year, the market is expecting a contraction of 3.4% in earnings ($2.16 versus $2.23).
- 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 Capital Markets industry. The net income has significantly decreased by 89.7% when compared to the same quarter one year ago, falling from $146.26 million to $15.13 million.
- You can view the full KKR Ratings Report.
- Our dividend calendar.