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." Compuware Corporation (NASDAQ: CPWR) shares currently have a dividend yield of 4.70%. Compuware Corporation provides services, software, and practices for information technology (IT) organizations worldwide. The average volume for Compuware Corporation has been 2,071,800 shares per day over the past 30 days. Compuware Corporation has a market cap of $2.3 billion and is part of the computer software & services industry. Shares are down 4.8% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Compuware Corporation as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- CPWR has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.05, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for COMPUWARE CORP is currently very high, coming in at 71.03%. Regardless of CPWR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CPWR's net profit margin of 9.98% is significantly lower than the industry average.
- Net operating cash flow has declined marginally to $32.16 million or 1.48% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, COMPUWARE CORP has marginally lower results.
- 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. Compared to other companies in the Software industry and the overall market, COMPUWARE CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Compuware Corporation Ratings Report.
- FE, with its decline in revenue, slightly underperformed the industry average of 3.6%. Since the same quarter one year prior, revenues slightly dropped by 0.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- FIRSTENERGY CORP's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, FIRSTENERGY CORP reported lower earnings of $1.81 versus $2.13 in the prior year. This year, the market expects an improvement in earnings ($3.00 versus $1.81).
- 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 Electric Utilities industry. The net income has significantly decreased by 48.7% when compared to the same quarter one year ago, falling from $425.00 million to $218.00 million.
- The gross profit margin for FIRSTENERGY CORP is currently lower than what is desirable, coming in at 28.54%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 5.42% trails that of the industry average.
- Net operating cash flow has declined marginally to $1,178.00 million or 2.96% 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 FirstEnergy Ratings Report.
- LXP's revenue growth has slightly outpaced the industry average of 6.8%. Since the same quarter one year prior, revenues rose by 14.9%. 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.
- In its most recent trading session, LXP 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- LEXINGTON REALTY TRUST's earnings per share declined by 16.7% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, LEXINGTON REALTY TRUST swung to a loss, reporting -$0.15 versus $0.87 in the prior year. This year, the market expects an improvement in earnings ($0.28 versus -$0.15).
- 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 Real Estate Investment Trusts (REITs) industry and the overall market, LEXINGTON REALTY TRUST's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for LEXINGTON REALTY TRUST is currently extremely low, coming in at 6.76%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -6.53% is significantly below that of the industry average.
- You can view the full Lexington Realty Ratings Report.
- Our dividend calendar.