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 "Hold." WGL Holdings (NYSE: WGL) shares currently have a dividend yield of 4.30%. WGL Holdings, Inc., through its subsidiaries, sells and delivers natural gas, and provides energy-related products and services. The company operates in four segments: Regulated Utility, Retail Energy-Marketing, Commercial Energy Systems, and Midstream Energy Services. The company has a P/E ratio of 25.10. The average volume for WGL Holdings has been 307,800 shares per day over the past 30 days. WGL Holdings has a market cap of $2.0 billion and is part of the utilities industry. Shares are down 3% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates WGL Holdings as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- The debt-to-equity ratio is somewhat low, currently at 0.74, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.24 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Net operating cash flow has increased to -$68.35 million or 31.80% when compared to the same quarter last year. Despite an increase in cash flow, WGL HOLDINGS INC's cash flow growth rate is still lower than the industry average growth rate of 54.36%.
- WGL, with its decline in revenue, underperformed when compared the industry average of 15.1%. Since the same quarter one year prior, revenues slightly dropped by 2.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- In its most recent trading session, WGL 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. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Gas Utilities industry and the overall market, WGL HOLDINGS INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full WGL Holdings Ratings Report.