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." Geo Group (NYSE: GEO) shares currently have a dividend yield of 6.40%. The GEO Group, Inc. provides government-outsourced services specializing in the management of correctional, detention, and re-entry facilities, and the provision of community based services and youth services in the United States, Australia, South Africa, the United Kingdom, and Canada. The company has a P/E ratio of 11.96. The average volume for Geo Group has been 539,000 shares per day over the past 30 days. Geo Group has a market cap of $2.2 billion and is part of the diversified services industry. Shares are up 8.3% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Geo Group as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, notable return on equity, reasonable valuation levels and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 52.0% when compared to the same quarter one year prior, rising from $22.50 million to $34.21 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.7%. Since the same quarter one year prior, revenues slightly increased by 2.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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 other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, GEO GROUP INC's return on equity exceeds that of both the industry average and the S&P 500.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. 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.
- You can view the full Geo Group Ratings Report.
- SO's revenue growth trails the industry average of 16.0%. Since the same quarter one year prior, revenues slightly increased by 1.6%. 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.
- SOUTHERN CO 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. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SOUTHERN CO increased its bottom line by earning $2.67 versus $2.55 in the prior year. This year, the market expects an improvement in earnings ($2.74 versus $2.67).
- Net operating cash flow has slightly increased to $1,210.00 million or 1.76% when compared to the same quarter last year. Despite an increase in cash flow, SOUTHERN CO's cash flow growth rate is still lower than the industry average growth rate of 17.92%.
- 36.88% is the gross profit margin for SOUTHERN CO which we consider to be strong. Regardless of SO'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 7.37% trails the industry average.
- Even though the current debt-to-equity ratio is 1.24, 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 0.26 is very low and demonstrates very weak liquidity.
- You can view the full Southern Ratings Report.
- WPC's very impressive revenue growth greatly exceeded the industry average of 10.7%. Since the same quarter one year prior, revenues leaped by 77.4%. 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, WPC's share price has jumped by 43.94%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, WPC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The gross profit margin for W P CAREY INC is currently very high, coming in at 80.03%. It has increased significantly from the same period last year. Along with this, the net profit margin of 36.25% is above that of the industry average.
- Net operating cash flow has significantly increased by 240.23% to $53.98 million when compared to the same quarter last year. In addition, W P CAREY INC has also vastly surpassed the industry average cash flow growth rate of 5.48%.
- W P CAREY INC's earnings per share declined by 27.5% 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 two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, W P CAREY INC reported lower earnings of $1.81 versus $3.71 in the prior year. This year, the market expects an improvement in earnings ($2.69 versus $1.81).
- You can view the full W. P. Carey Ratings Report.
- Our dividend calendar.