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 "Hold." Freeport-McMoRan Copper & Gold (NYSE: FCX) shares currently have a dividend yield of 4.10%. Freeport-McMoRan Copper & Gold Inc. engages in the exploration of mineral resource properties. The company primarily explores for copper, gold, molybdenum, cobalt, silver, and other metals, such as rhenium and magnetite. The company has a P/E ratio of 10.91. The average volume for Freeport-McMoRan Copper & Gold has been 15,007,000 shares per day over the past 30 days. Freeport-McMoRan Copper & Gold has a market cap of $31.9 billion and is part of the metals & mining industry. Shares are down 10.1% year to date as of the close of trading on Friday. TheStreet Ratings rates Freeport-McMoRan Copper & Gold as a hold. Among the primary strengths of the company is its respectable return on equity which we feel is likely to continue. At the same time, however, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and generally higher debt management risk. Highlights from the ratings report include:
- FCX, with its decline in revenue, slightly underperformed the industry average of 5.6%. Since the same quarter one year prior, revenues slightly dropped by 4.2%. Weakness in the company's revenue seems to have hurt the 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. In comparison to the other companies in the Metals & Mining industry and the overall market, FREEPORT-MCMORAN COP&GOLD's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- The share price of FREEPORT-MCMORAN COP&GOLD has not done very well: it is down 12.74% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The gross profit margin for FREEPORT-MCMORAN COP&GOLD is currently lower than what is desirable, coming in at 34.00%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 11.24% trails that of the industry average.
- Net operating cash flow has decreased to $1,034.00 million or 12.52% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, FREEPORT-MCMORAN COP&GOLD has marginally lower results.
- You can view the full Freeport-McMoRan Copper & Gold Ratings Report.