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 3 stocks with substantial yields, that ultimately, we have rated "Buy." Integrys Energy Group (NYSE: TEG) shares currently have a dividend yield of 5.20%. Integrys Energy Group, Inc. operates as a diversified energy holding company with regulated natural gas and electric utility operations in Illinois, Michigan, Minnesota, and Wisconsin. The company has a P/E ratio of 14.69. The average volume for Integrys Energy Group has been 421,900 shares per day over the past 30 days. Integrys Energy Group has a market cap of $4.2 billion and is part of the utilities industry. Shares are down 3.2% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Integrys Energy Group as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 0.2%. Since the same quarter one year prior, revenues rose by 21.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.99, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Multi-Utilities industry and the overall market on the basis of return on equity, INTEGRYS ENERGY GROUP INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- INTEGRYS ENERGY GROUP INC's earnings per share declined by 48.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, INTEGRYS ENERGY GROUP INC increased its bottom line by earning $3.68 versus $2.88 in the prior year. For the next year, the market is expecting a contraction of 4.9% in earnings ($3.50 versus $3.68).
- You can view the full Integrys Energy Group Ratings Report.