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." SK Telecom (NYSE: SKM) shares currently have a dividend yield of 7.50%. SK Telecom Co., Ltd. provides wireless telecommunications services principally in Korea. The company has a P/E ratio of 10.34. The average volume for SK Telecom has been 1,108,200 shares per day over the past 30 days. SK Telecom has a market cap of $13.8 billion and is part of the telecommunications industry. Shares are up 39.2% year to date as of the close of trading on Friday. TheStreet Ratings rates SK Telecom as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, attractive valuation levels, increase in net income and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- SKM's revenue growth has slightly outpaced the industry average of 2.9%. Since the same quarter one year prior, revenues slightly increased by 5.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 51.54% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, SKM should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Wireless Telecommunication Services industry average. The net income increased by 17.5% when compared to the same quarter one year prior, going from $270.84 million to $318.35 million.
- The debt-to-equity ratio is somewhat low, currently at 0.64, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.74 is somewhat weak and could be cause for future problems.
- You can view the full SK Telecom Ratings Report.