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." Pzena Investment Management (NYSE: PZN) shares currently have a dividend yield of 9.60%. Pzena Investment Management, Inc. is a publicly owned investment manager. The company has a P/E ratio of 24.70. The average volume for Pzena Investment Management has been 83,900 shares per day over the past 30 days. Pzena Investment Management has a market cap of $132.0 million and is part of the financial services industry. Shares are down 7.6% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Pzena Investment Management as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 17.1%. Since the same quarter one year prior, revenues rose by 48.9%. 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. Compared to other companies in the Capital Markets industry and the overall market, PZENA INVESTMENT MANAGEMENT's return on equity significantly exceeds that of both the industry average and the S&P 500.
- PZENA INVESTMENT MANAGEMENT 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. During the past fiscal year, PZENA INVESTMENT MANAGEMENT increased its bottom line by earning $0.46 versus $0.32 in the prior year. This year, the market expects an improvement in earnings ($0.50 versus $0.46).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 138.4% when compared to the same quarter one year prior, rising from $0.96 million to $2.28 million.
- The gross profit margin for PZENA INVESTMENT MANAGEMENT is rather high; currently it is at 59.82%. It has increased significantly from the same period last year. Despite the strong results of the gross profit margin, PZN's net profit margin of 7.92% significantly trails the industry average.
- You can view the full Pzena Investment Management Ratings Report.