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 "Hold." Valassis Communications (NYSE: VCI) shares currently have a dividend yield of 4.30%. Valassis Communications, Inc., together with its subsidiaries, provides media solutions primarily in the United States and Europe. The company has a P/E ratio of 10.45. The average volume for Valassis Communications has been 407,200 shares per day over the past 30 days. Valassis Communications has a market cap of $1.1 billion and is part of the media industry. Shares are up 10.6% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Valassis Communications as a hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, increase in stock price during the past year and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including poor profit margins, deteriorating net income and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- VCI, with its decline in revenue, slightly underperformed the industry average of 3.2%. Since the same quarter one year prior, revenues slightly dropped by 6.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The change in net income from the same quarter one year ago has exceeded that of the Media industry average, but is less than that of the S&P 500. The net income has decreased by 24.6% when compared to the same quarter one year ago, dropping from $36.74 million to $27.71 million.
- The gross profit margin for VALASSIS COMMUNICATIONS INC is currently lower than what is desirable, coming in at 27.73%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 5.66% trails that of the industry average.
- You can view the full Valassis Communications Ratings Report.