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 "Hold." Transocean (NYSE: RIG) shares currently have a dividend yield of 5.20%. Transocean Ltd. provides offshore contract drilling services for oil and gas wells worldwide. It offers deepwater and harsh environment drilling, oil and gas drilling management, and drilling engineering and drilling project management services, as well as logistics services. The company has a P/E ratio of 9.67. The average volume for Transocean has been 4,074,300 shares per day over the past 30 days. Transocean has a market cap of $15.6 billion and is part of the energy industry. Shares are down 11.1% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Transocean as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Energy Equipment & Services industry. The net income increased by 243.3% when compared to the same quarter one year prior, rising from -$381.00 million to $546.00 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 8.1%. Since the same quarter one year prior, revenues slightly increased by 5.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- RIG's debt-to-equity ratio of 0.66 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that RIG's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.58 is high and demonstrates strong liquidity.
- RIG has underperformed the S&P 500 Index, declining 18.85% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Net operating cash flow has decreased to $623.00 million or 20.73% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Transocean Ratings Report.
- Compared to its closing price of one year ago, RRD's share price has jumped by 83.38%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- Despite its growing revenue, the company underperformed as compared with the industry average of 6.6%. Since the same quarter one year prior, revenues slightly increased by 4.2%. 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 gross profit margin for DONNELLEY (R R) & SONS CO is rather low; currently it is at 21.81%. 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 0.56% is above that of the industry average.
- 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 Commercial Services & Supplies industry and the overall market, DONNELLEY (R R) & SONS CO's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full R.R. Donnelley & Sons Company Ratings Report.
- The revenue growth came in higher than the industry average of 6.8%. Since the same quarter one year prior, revenues rose by 19.6%. 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 gross profit margin for INVESCO MORTGAGE CAPITAL INC is currently very high, coming in at 91.82%. Regardless of IVR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, IVR's net profit margin of -46.08% significantly underperformed when compared 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 significantly decreased by 187.5% when compared to the same quarter one year ago, falling from $92.23 million to -$80.67 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, INVESCO MORTGAGE CAPITAL INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Invesco Mortgage Capital Ratings Report.
- Our dividend calendar.