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 "Buy." American Electric Power (NYSE: AEP) shares currently have a dividend yield of 4.60%. 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 16.95. The average volume for American Electric Power has been 3,423,900 shares per day over the past 30 days. American Electric Power has a market cap of $20.5 billion and is part of the utilities industry. Shares are down 1.3% year to date as of the close of trading on Thursday. TheStreet Ratings rates American Electric Power as a buy. Among the primary strengths of the company is its revenue growth. 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 16.0%. 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).
- 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.
- 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. 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 American Electric Power Ratings Report.
- VTR's revenue growth has slightly outpaced the industry average of 10.7%. Since the same quarter one year prior, revenues rose by 11.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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 54.8% when compared to the same quarter one year prior, rising from $74.03 million to $114.58 million.
- Net operating cash flow has increased to $277.38 million or 28.50% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 5.48%.
- VENTAS INC reported significant earnings per share improvement in the most recent quarter compared to 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, VENTAS INC reported lower earnings of $1.04 versus $1.41 in the prior year. This year, the market expects an improvement in earnings ($1.60 versus $1.04).
- You can view the full Ventas Ratings Report.
- Net operating cash flow has significantly increased by 59.38% to $129.90 million when compared to the same quarter last year. In addition, TECO ENERGY INC has also vastly surpassed the industry average cash flow growth rate of 4.37%.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.6%. Since the same quarter one year prior, revenues slightly dropped by 2.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Even though the current debt-to-equity ratio is 1.29, it is still below the industry average, suggesting that this level of debt is acceptable within the Multi-Utilities industry. Despite the fact that TE's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.60 is low and demonstrates weak liquidity.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Multi-Utilities industry and the overall market on the basis of return on equity, TECO ENERGY INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full TECO Energy Ratings Report.
- HIGHWOODS PROPERTIES INC has improved earnings per share by 38.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, HIGHWOODS PROPERTIES INC increased its bottom line by earning $0.59 versus $0.41 in the prior year. This year, the market expects an improvement in earnings ($0.77 versus $0.59).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 107.1% when compared to the same quarter one year prior, rising from $13.59 million to $28.15 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 8.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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 Highwoods Properties Ratings Report.
- Our dividend calendar.