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." Williams Companies (NYSE: WMB) shares currently have a dividend yield of 4.20%. The Williams Companies, Inc. operates as an energy infrastructure company. The company has a P/E ratio of 41.22. The average volume for Williams Companies has been 5,560,700 shares per day over the past 30 days. Williams Companies has a market cap of $24.8 billion and is part of the energy industry. Shares are up 12.3% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Williams Companies 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 $539.00 million or 25.05% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 1.02%.
- 39.93% is the gross profit margin for WILLIAMS COS INC which we consider to be strong. Regardless of WMB's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WMB's net profit margin of 8.68% compares favorably to the industry average.
- WMB, with its decline in revenue, slightly underperformed the industry average of 5.4%. Since the same quarter one year prior, revenues slightly dropped by 7.4%. 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.
- The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has decreased by 9.0% when compared to the same quarter one year ago, dropping from $155.00 million to $141.00 million.
- You can view the full Williams Companies Ratings Report.