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." CenturyLink (NYSE: CTL) shares currently have a dividend yield of 6.60%. CenturyLink, Inc. operates as an integrated telecommunications company in the United States. The company has a P/E ratio of 16.25. The average volume for CenturyLink has been 5,026,200 shares per day over the past 30 days. CenturyLink has a market cap of $19.5 billion and is part of the telecommunications industry. Shares are down 17.9% year to date as of the close of trading on Thursday. TheStreet Ratings rates CenturyLink as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, good cash flow from operations, impressive record of earnings per share growth, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Telecommunication Services industry. The net income increased by 263.5% when compared to the same quarter one year prior, rising from $74.00 million to $269.00 million.
- Net operating cash flow has increased to $1,469.00 million or 20.80% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -1.95%.
- CENTURYLINK 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, CENTURYLINK INC reported lower earnings of $1.24 versus $1.29 in the prior year. This year, the market expects an improvement in earnings ($2.71 versus $1.24).
- 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 1.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for CENTURYLINK INC is rather high; currently it is at 58.70%. Regardless of CTL'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 5.94% trails the industry average.
- You can view the full CenturyLink Ratings Report.
- The gross profit margin for GLAXOSMITHKLINE PLC is currently very high, coming in at 71.13%. 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 15.65% trails the industry average.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. 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.
- GLAXOSMITHKLINE PLC's earnings per share declined by 13.3% 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, GLAXOSMITHKLINE PLC reported lower earnings of $2.94 versus $3.21 in the prior year. This year, the market expects an improvement in earnings ($3.59 versus $2.94).
- GSK, with its decline in revenue, slightly underperformed the industry average of 4.0%. Since the same quarter one year prior, revenues slightly dropped by 3.4%. The declining revenue appears to have seeped down to the company's 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 Pharmaceuticals industry and the overall market, GLAXOSMITHKLINE PLC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- You can view the full GlaxoSmithKline Ratings Report.
- APL's very impressive revenue growth greatly exceeded the industry average of 6.6%. Since the same quarter one year prior, revenues leaped by 109.5%. 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.
- Net operating cash flow has increased to $30.47 million or 39.85% when compared to the same quarter last year. In addition, ATLAS PIPELINE PARTNER LP has also vastly surpassed the industry average cash flow growth rate of -15.97%.
- 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. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- ATLAS PIPELINE PARTNER 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. 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, ATLAS PIPELINE PARTNER LP reported lower earnings of $0.97 versus $5.22 in the prior year. This year, the market expects an improvement in earnings ($1.76 versus $0.97).
- APL's debt-to-equity ratio of 0.72 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.91 is weak.
- You can view the full Atlas Pipeline Partners Ratings Report.
- Our dividend calendar.