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." Consolidated Edison (NYSE: ED) shares currently have a dividend yield of 4.20%. Consolidated Edison, Inc., through its subsidiaries, engages in regulated electric, gas, and steam delivery businesses. The company has a P/E ratio of 16.54. The average volume for Consolidated Edison has been 2,057,100 shares per day over the past 30 days. Consolidated Edison has a market cap of $17.0 billion and is part of the utilities industry. Shares are up 4.8% year to date as of the close of trading on Monday. TheStreet Ratings rates Consolidated Edison as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, increase in net income, growth in earnings per share 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:
- ED's revenue growth has slightly outpaced the industry average of 5.4%. Since the same quarter one year prior, revenues slightly increased by 1.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The net income growth from the same quarter one year ago has exceeded that of the Multi-Utilities industry average, but is less than that of the S&P 500. The net income increased by 5.5% when compared to the same quarter one year prior, going from $440.00 million to $464.00 million.
- CONSOLIDATED EDISON INC has improved earnings per share by 6.0% 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, CONSOLIDATED EDISON INC increased its bottom line by earning $3.86 versus $3.57 in the prior year. For the next year, the market is expecting a contraction of 2.8% in earnings ($3.75 versus $3.86).
- In its most recent trading session, ED 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. 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.
- You can view the full Consolidated Edison Ratings Report.