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." Windstream Holdings (NASDAQ: WIN) shares currently have a dividend yield of 11.80%. Windstream Corporation provides communications and technology solutions in the United States. The company offers managed services and cloud computing services to businesses, as well as broadband, voice, and video services to consumers primarily in rural markets. The company has a P/E ratio of 35.38. The average volume for Windstream Holdings has been 6,770,800 shares per day over the past 30 days. Windstream Holdings has a market cap of $5.0 billion and is part of the telecommunications industry. Shares are up 2.5% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Windstream Holdings as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- Net operating cash flow has slightly increased to $408.00 million or 2.51% when compared to the same quarter last year. In addition, WINDSTREAM HOLDINGS INC has also modestly surpassed the industry average cash flow growth rate of -2.13%.
- The gross profit margin for WINDSTREAM HOLDINGS INC is rather high; currently it is at 53.43%. 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 2.63% trails the industry average.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, WINDSTREAM HOLDINGS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Diversified Telecommunication Services industry. The net income has decreased by 22.1% when compared to the same quarter one year ago, dropping from $51.00 million to $39.70 million.
- The debt-to-equity ratio is very high at 9.45 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, WIN has a quick ratio of 0.53, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full Windstream Holdings Ratings Report.
- The revenue growth came in higher than the industry average of 6.5%. Since the same quarter one year prior, revenues slightly increased by 6.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for LINN ENERGY LLC is currently very high, coming in at 83.23%. It has increased significantly from the same period last year. Along with this, the net profit margin of 41.39% significantly outperformed against the industry average.
- LINN ENERGY LLC has improved earnings per share by 22.7% 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, LINN ENERGY LLC swung to a loss, reporting -$1.86 versus $2.21 in the prior year. This year, the market expects an improvement in earnings ($0.92 versus -$1.86).
- The debt-to-equity ratio of 1.48 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.44, which clearly demonstrates the inability to cover short-term cash needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LINN ENERGY LLC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Linn Energy Ratings Report.
- TWO's very impressive revenue growth greatly exceeded the industry average of 10.8%. Since the same quarter one year prior, revenues leaped by 133.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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. In comparison to the other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, TWO HARBORS INVESTMENT CORP's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- TWO has underperformed the S&P 500 Index, declining 17.81% from its price level of one year ago. 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.
- Net operating cash flow has significantly decreased to -$663.79 million or 1457.41% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Two Harbors Investment Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Gas Utilities industry. The net income increased by 61.3% when compared to the same quarter one year prior, rising from -$89.38 million to -$34.60 million.
- APU's revenue growth trails the industry average of 21.1%. Since the same quarter one year prior, revenues slightly increased by 1.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- In its most recent trading session, APU has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors.
- Currently the debt-to-equity ratio of 1.60 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. To add to this, APU has a quick ratio of 0.66, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- Net operating cash flow has decreased to $57.23 million or 43.00% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full AmeriGas Partners Ratings Report.
- Our dividend calendar.