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 "Hold." Companhia Siderurgica Nacional (NYSE: SID) shares currently have a dividend yield of 4.40%. Companhia Siderurgica Nacional operates as an integrated steel producer primarily in Brazil. The company principally produces carbon steel and various steel products for automotive, home appliance, packaging, construction, and steel processing industries. The average volume for Companhia Siderurgica Nacional has been 7,468,500 shares per day over the past 30 days. Companhia Siderurgica Nacional has a market cap of $7.8 billion and is part of the metals & mining industry. Shares are down 8.1% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Companhia Siderurgica Nacional as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and generally higher debt management risk. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 3.5%. Since the same quarter one year prior, revenues rose by 13.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to the other companies in the Metals & Mining industry and the overall market, COMPANHIA SIDERURGICA NACION's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- 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, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- The debt-to-equity ratio is very high at 3.67 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, SID has managed to keep a strong quick ratio of 2.09, which demonstrates the ability to cover short-term cash needs.
- Net operating cash flow has decreased to $272.23 million or 32.78% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, COMPANHIA SIDERURGICA NACION has marginally lower results.
- You can view the full Companhia Siderurgica Nacional Ratings Report.