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." Administradora de Fondos de Pensiones-Provi (NYSE: PVD) shares currently have a dividend yield of 11.90%. Administradora de Fondos de Pensiones Provida S.A. offers private pension fund administration and related services in the Republic of Chile. The company has a P/E ratio of 13.60. The average volume for Administradora de Fondos de Pensiones-Provi has been 38,400 shares per day over the past 30 days. Administradora de Fondos de Pensiones-Provi has a market cap of $2.0 billion and is part of the financial services industry. Shares are down 11.8% year to date as of the close of trading on Thursday. TheStreet Ratings rates Administradora de Fondos de Pensiones-Provi as a buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, notable return on equity, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Highlights from the ratings report include:
- AFP PROVIDA SA reported significant earnings per share improvement 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 two years. During the past fiscal year, AFP PROVIDA SA increased its bottom line by earning $9.85 versus $6.87 in the prior year.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 146.2% when compared to the same quarter one year prior, rising from $67.97 million to $167.35 million.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Capital Markets industry and the overall market, AFP PROVIDA SA's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for AFP PROVIDA SA is rather high; currently it is at 65.39%. Regardless of PVD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PVD's net profit margin of 166.95% significantly outperformed against the industry.
- PVD, with its decline in revenue, underperformed when compared the industry average of 12.4%. Since the same quarter one year prior, revenues slightly dropped by 4.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full Administradora de Fondos de Pensiones-Provi Ratings Report.