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 5 stocks with substantial yields, that ultimately, we have rated "Buy." Valley National Bancorp (NYSE: VLY) shares currently have a dividend yield of 4.30%. Valley National Bancorp operates as the bank holding company for the Valley National Bank that provides commercial, retail, and wealth management financial services. The company has a P/E ratio of 15.62. The average volume for Valley National Bancorp has been 1,160,000 shares per day over the past 30 days. Valley National Bancorp has a market cap of $2.0 billion and is part of the banking industry. Shares are up 8.8% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Valley National Bancorp as a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins 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:
- Net operating cash flow has increased to $89.13 million or 21.57% when compared to the same quarter last year. Despite an increase in cash flow of 21.57%, VALLEY NATIONAL BANCORP is still growing at a significantly lower rate than the industry average of 74.04%.
- The gross profit margin for VALLEY NATIONAL BANCORP is currently very high, coming in at 73.07%. Regardless of VLY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VLY's net profit margin of 15.39% is significantly lower than the industry average.
- VLY, with its decline in revenue, underperformed when compared the industry average of 3.1%. Since the same quarter one year prior, revenues fell by 15.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- 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. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- VALLEY NATIONAL BANCORP's earnings per share declined by 30.0% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, VALLEY NATIONAL BANCORP reported lower earnings of $0.74 versus $0.76 in the prior year. For the next year, the market is expecting a contraction of 18.4% in earnings ($0.61 versus $0.74).
- You can view the full Valley National Bancorp Ratings Report.