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." CVR Energy (NYSE: CVI) shares currently have a dividend yield of 8.30%. CVR Energy, Inc., through its subsidiaries, engages in petroleum refining and nitrogen fertilizer manufacturing activities in the United States. The company operates through two segments, Petroleum and Nitrogen Fertilizer. The company has a P/E ratio of 7.26. The average volume for CVR Energy has been 537,300 shares per day over the past 30 days. CVR Energy has a market cap of $3.1 billion and is part of the energy industry. Shares are down 25.4% year to date as of the close of trading on Thursday. TheStreet Ratings rates CVR Energy as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CVR ENERGY INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- Despite currently having a low debt-to-equity ratio of 0.53, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that CVI's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.97 is high and demonstrates strong liquidity.
- CVI, with its decline in revenue, underperformed when compared the industry average of 5.5%. Since the same quarter one year prior, revenues fell by 17.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- CVR ENERGY INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, CVR ENERGY INC increased its bottom line by earning $4.33 versus $3.94 in the prior year. For the next year, the market is expecting a contraction of 11.4% in earnings ($3.83 versus $4.33).
- You can view the full CVR Energy Ratings Report.