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." Garmin (NASDAQ: GRMN) shares currently have a dividend yield of 4.70%. Garmin Ltd., together with its subsidiaries, designs, develops, manufactures, and markets global positioning system (GPS) enabled products and other navigation, communication, and information products for the automotive/mobile, outdoor, fitness, marine, and general aviation markets worldwide. The company has a P/E ratio of 14.24. The average volume for Garmin has been 1,071,000 shares per day over the past 30 days. Garmin has a market cap of $8.0 billion and is part of the electronics industry. Shares are down 5.6% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Garmin as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures 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:
- GRMN has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, GRMN has a quick ratio of 1.92, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for GARMIN LTD is rather high; currently it is at 56.90%. Regardless of GRMN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GRMN's net profit margin of 24.76% significantly outperformed against the industry.
- GRMN, with its decline in revenue, underperformed when compared the industry average of 21.7%. Since the same quarter one year prior, revenues slightly dropped by 3.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- GARMIN LTD's earnings per share declined by 7.4% in the most recent quarter compared to 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, GARMIN LTD increased its bottom line by earning $2.77 versus $2.67 in the prior year. For the next year, the market is expecting a contraction of 14.1% in earnings ($2.38 versus $2.77).
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, GRMN has underperformed the S&P 500 Index, declining 6.57% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full Garmin Ratings Report.
- The revenue growth came in higher than the industry average of 3.1%. Since the same quarter one year prior, revenues rose by 10.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 38.74% is the gross profit margin for PUBLIC SERVICE ENTRP GRP INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 14.41% is above that of the industry average.
- Net operating cash flow has significantly increased by 60.68% to $466.00 million when compared to the same quarter last year. In addition, PUBLIC SERVICE ENTRP GRP INC has also vastly surpassed the industry average cash flow growth rate of 3.74%.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Multi-Utilities industry. The net income increased by 57.8% when compared to the same quarter one year prior, rising from $211.00 million to $333.00 million.
- You can view the full Public Service Enterprise Group Ratings Report.
- Since the same quarter one year prior, revenues rose by 19.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has significantly increased by 66.17% to $135.10 million when compared to the same quarter last year.
- The net income increased by 672.3% when compared to the same quarter one year prior, rising from -$33.90 million to $194.00 million.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company.
- Compared to where it was trading one year ago, ORI is up 65.84% to its most recent closing price of 14.76. 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.
- You can view the full Old Republic International Ratings Report.
- Our dividend calendar.