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 "Sell." Pan American Silver Corporation (NASDAQ: PAAS) shares currently have a dividend yield of 4.20%. Pan American Silver Corp. engages in the exploration, development, and operation of silver producing properties and assets. It produces and sells silver, gold, copper, lead, and zinc. The average volume for Pan American Silver Corporation has been 2,094,000 shares per day over the past 30 days. Pan American Silver Corporation has a market cap of $1.8 billion and is part of the metals & mining industry. Shares are up 1.2% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Pan American Silver Corporation as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- PAN AMERICAN SILVER CORP's earnings per share declined by 40.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, PAN AMERICAN SILVER CORP reported lower earnings of $0.56 versus $3.01 in the prior year.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 37.3% when compared to the same quarter one year ago, falling from $22.58 million to $14.15 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, PAN AMERICAN SILVER CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- Net operating cash flow has decreased to $40.73 million or 48.77% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 37.75%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 40.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full Pan American Silver Corporation Ratings Report.