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." Darden Restaurants (NYSE: DRI) shares currently have a dividend yield of 4.10%. Darden Restaurants, Inc. owns and operates full service restaurants in the United States and Canada. It operates restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V's Prime Seafood, and Wildfish Seafood Grille brand names. The company has a P/E ratio of 19.10. The average volume for Darden Restaurants has been 1,903,800 shares per day over the past 30 days. Darden Restaurants has a market cap of $7.0 billion and is part of the leisure industry. Shares are up 19.5% year to date as of the close of trading on Monday. TheStreet Ratings rates Darden Restaurants as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share. Highlights from the ratings report include:
- DRI's revenue growth has slightly outpaced the industry average of 0.7%. Since the same quarter one year prior, revenues slightly increased by 6.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- In its most recent trading session, DRI 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.
- Even though the current debt-to-equity ratio is 1.33, it is still below the industry average, suggesting that this level of debt is acceptable within the Hotels, Restaurants & Leisure industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.12 is very low and demonstrates very weak liquidity.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market on the basis of return on equity, DARDEN RESTAURANTS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full Darden Restaurants Ratings Report.
- Since the same quarter one year prior, revenues rose by 34.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has significantly increased by 103.02% to $268.31 million when compared to the same quarter last year.
- The net income increased by 1.5% when compared to the same quarter one year prior, going from $54.94 million to $55.76 million.
- 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 where it was trading one year ago, KIM is up 10.25% to its most recent closing price of 20.96. Looking ahead, although the push and pull of a bull or bear market could certainly alter the outcome, our view is that this stock's positive fundamentals give it good potential for further appreciation.
- You can view the full Kimco Realty Ratings Report.
- RAI's revenue growth has slightly outpaced the industry average of 1.4%. Since the same quarter one year prior, revenues slightly increased by 0.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Tobacco industry and the overall market, REYNOLDS AMERICAN INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for REYNOLDS AMERICAN INC is rather high; currently it is at 54.05%. 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 21.40% trails the industry average.
- REYNOLDS AMERICAN INC has improved earnings per share by 13.5% 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, REYNOLDS AMERICAN INC reported lower earnings of $2.24 versus $2.41 in the prior year. This year, the market expects an improvement in earnings ($3.23 versus $2.24).
- The net income growth from the same quarter one year ago has exceeded that of the Tobacco industry average, but is less than that of the S&P 500. The net income increased by 8.8% when compared to the same quarter one year prior, going from $420.00 million to $457.00 million.
- You can view the full Reynolds American Ratings Report.
- Our dividend calendar.