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." CenturyLink (NYSE: CTL) shares currently have a dividend yield of 7.60%. CenturyLink, Inc. operates as an integrated telecommunications company in the United States. The average volume for CenturyLink has been 5,617,000 shares per day over the past 30 days. CenturyLink has a market cap of $16.9 billion and is part of the telecommunications industry. Shares are down 10.2% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates CenturyLink as a hold. Among the primary strengths of the company is its expanding profit margins over time. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- The gross profit margin for CENTURYLINK INC is rather high; currently it is at 57.59%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -23.14% is in-line with the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.7%. Since the same quarter one year prior, revenues slightly dropped by 1.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- CENTURYLINK INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, CENTURYLINK INC reported lower earnings of $1.24 versus $1.29 in the prior year. This year, the market expects an improvement in earnings ($2.68 versus $1.24).
- 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. Compared to other companies in the Diversified Telecommunication Services industry and the overall market, CENTURYLINK INC's return on equity significantly trails that of both the industry average and the S&P 500.
- 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 Diversified Telecommunication Services industry. The net income has significantly decreased by 487.0% when compared to the same quarter one year ago, falling from $270.00 million to -$1,045.00 million.
- You can view the full CenturyLink Ratings Report.
- DLR's revenue growth has slightly outpaced the industry average of 9.6%. Since the same quarter one year prior, revenues rose by 10.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- DIGITAL REALTY TRUST INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, DIGITAL REALTY TRUST INC increased its bottom line by earning $1.47 versus $1.31 in the prior year. This year, the market expects an improvement in earnings ($1.98 versus $1.47).
- DLR's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 25.69%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
- The gross profit margin for DIGITAL REALTY TRUST INC is rather low; currently it is at 22.86%. It has decreased from the same quarter the previous year. Despite the weak results of the gross profit margin, the net profit margin of 39.47% has significantly outperformed against the industry average.
- You can view the full Digital Realty Ratings Report.
- 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ANNALY CAPITAL MANAGEMENT's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for ANNALY CAPITAL MANAGEMENT is currently very high, coming in at 91.13%. Regardless of NLY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NLY's net profit margin of 29.04% compares favorably to the industry average.
- 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 Real Estate Investment Trusts (REITs) industry. The net income has decreased by 14.4% when compared to the same quarter one year ago, dropping from $224.76 million to $192.46 million.
- Net operating cash flow has significantly decreased to $810.87 million or 77.46% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Annaly Capital Management Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electric Utilities industry. The net income increased by 149.3% when compared to the same quarter one year prior, rising from $296.00 million to $738.00 million.
- The debt-to-equity ratio is somewhat low, currently at 0.93, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.77 is somewhat weak and could be cause for future problems.
- The gross profit margin for EXELON CORP is currently lower than what is desirable, coming in at 28.22%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 11.35% trails the industry average.
- EXC has underperformed the S&P 500 Index, declining 5.57% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- You can view the full Exelon Ratings Report.
- Our dividend calendar.