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." Dupont Fabros Technology (NYSE: DFT) shares currently have a dividend yield of 5.30%. DuPont Fabros Technology, Inc., a real estate investment trust (REIT), engages in the ownership, acquisition, development, operation, management, and lease of large-scale data center facilities in the United States. The company has a P/E ratio of 81.91. The average volume for Dupont Fabros Technology has been 596,100 shares per day over the past 30 days. Dupont Fabros Technology has a market cap of $1.7 billion and is part of the real estate industry. Shares are up 5.1% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Dupont Fabros Technology as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, good cash flow from operations, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- DFT's revenue growth has slightly outpaced the industry average of 7.3%. Since the same quarter one year prior, revenues rose by 15.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Real Estate Investment Trusts (REITs) industry average. The net income increased by 33.8% when compared to the same quarter one year prior, rising from $13.66 million to $18.27 million.
- Net operating cash flow has significantly increased by 76.90% to $53.11 million when compared to the same quarter last year. In addition, DUPONT FABROS TECHNOLOGY INC has also vastly surpassed the industry average cash flow growth rate of -59.31%.
- 39.72% is the gross profit margin for DUPONT FABROS TECHNOLOGY INC which we consider to be strong. 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 18.36% trails the industry average.
- DUPONT FABROS TECHNOLOGY INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, DUPONT FABROS TECHNOLOGY INC reported lower earnings of $0.32 versus $0.41 in the prior year. This year, the market expects an improvement in earnings ($1.17 versus $0.32).
- You can view the full Dupont Fabros Technology Ratings Report.
- The revenue growth came in higher than the industry average of 21.5%. Since the same quarter one year prior, revenues slightly increased by 3.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Although ORI's debt-to-equity ratio of 0.15 is very low, it is currently higher than that of the industry average.
- Powered by its strong earnings growth of 512.50% and other important driving factors, this stock has surged by 30.00% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, ORI should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- Net operating cash flow has slightly increased to $227.80 million or 8.63% when compared to the same quarter last year. In addition, OLD REPUBLIC INTL CORP has also vastly surpassed the industry average cash flow growth rate of -86.73%.
- You can view the full Old Republic International Ratings Report.
- SO's revenue growth has slightly outpaced the industry average of 0.2%. Since the same quarter one year prior, revenues slightly increased by 6.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- SOUTHERN CO has improved earnings per share by 9.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SOUTHERN CO reported lower earnings of $1.87 versus $2.67 in the prior year. This year, the market expects an improvement in earnings ($2.76 versus $1.87).
- The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Electric Utilities industry average. The net income increased by 8.0% when compared to the same quarter one year prior, going from $399.00 million to $431.00 million.
- In its most recent trading session, SO 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, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- The gross profit margin for SOUTHERN CO is currently lower than what is desirable, coming in at 33.28%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 10.97% is above that of the industry average.
- You can view the full Southern Ratings Report.
- Our dividend calendar.