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." Garmin (NASDAQ: GRMN) shares currently have a dividend yield of 4.20%. Garmin Ltd. is a worldwide provider of navigation, communications and information devices, most of which are enabled by global positioning system (GPS) technology. The company has a P/E ratio of 15.80. The average volume for Garmin has been 1,241,800 shares per day over the past 30 days. Garmin has a market cap of $8.3 billion and is part of the electronics industry. Shares are up 4.7% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Garmin as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- GRMN has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, GRMN has a quick ratio of 1.92, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for GARMIN LTD is rather high; currently it is at 56.90%. Regardless of GRMN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GRMN's net profit margin of 24.76% significantly outperformed against the industry.
- 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.
- GRMN, with its decline in revenue, underperformed when compared the industry average of 20.9%. Since the same quarter one year prior, revenues slightly dropped by 3.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- GARMIN LTD's earnings per share declined by 7.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, GARMIN LTD increased its bottom line by earning $2.77 versus $2.67 in the prior year. For the next year, the market is expecting a contraction of 13.7% in earnings ($2.39 versus $2.77).
- You can view the full Garmin Ratings Report.