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." Altria Group (NYSE: MO) shares currently have a dividend yield of 5.40%. Altria Group, Inc., through its subsidiaries, engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. The company has a P/E ratio of 14.90. The average volume for Altria Group has been 9,284,900 shares per day over the past 30 days. Altria Group has a market cap of $70.9 billion and is part of the tobacco industry. Shares are down 7.6% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Altria Group as a buy. The company's strengths can be seen in multiple areas, such as its expanding profit margins 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 gross profit margin for ALTRIA GROUP INC is rather high; currently it is at 55.79%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, MO's net profit margin of 11.08% significantly trails the industry average.
- ALTRIA GROUP 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. 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, ALTRIA GROUP INC increased its bottom line by earning $2.26 versus $2.06 in the prior year. This year, the market expects an improvement in earnings ($2.57 versus $2.26).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.5%. Since the same quarter one year prior, revenues slightly dropped by 1.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Tobacco industry and the overall market, ALTRIA GROUP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- In its most recent trading session, MO 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. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full Altria Group Ratings Report.
- EPR's revenue growth has slightly outpaced the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 7.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- EPR PROPERTIES has improved earnings per share by 8.9% 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, EPR PROPERTIES increased its bottom line by earning $2.29 versus $1.62 in the prior year. This year, the market expects an improvement in earnings ($2.80 versus $2.29).
- 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 27.4% when compared to the same quarter one year prior, rising from $34.15 million to $43.50 million.
- Net operating cash flow has slightly increased to $45.65 million or 8.78% when compared to the same quarter last year. In addition, EPR PROPERTIES has also vastly surpassed the industry average cash flow growth rate of -59.31%.
- You can view the full EPR Properties Ratings Report.
- The current debt-to-equity ratio, 0.45, is low and is below the industry average, implying that there has been successful management of debt levels.
- Compared to its closing price of one year ago, AZN's share price has jumped by 47.25%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- ASTRAZENECA PLC 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 suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, ASTRAZENECA PLC reported lower earnings of $2.04 versus $4.94 in the prior year. This year, the market expects an improvement in earnings ($4.48 versus $2.04).
- AZN, with its decline in revenue, slightly underperformed the industry average of 3.4%. Since the same quarter one year prior, revenues slightly dropped by 2.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Net operating cash flow has decreased to $2,478.00 million or 12.99% when compared to the same quarter last year. Despite a decrease in cash flow ASTRAZENECA PLC is still fairing well by exceeding its industry average cash flow growth rate of -47.91%.
- You can view the full AstraZeneca Ratings Report.
- Our dividend calendar.