Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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."Pepco Holdings (NYSE: POM) shares currently have a dividend yield of 5.20%. Pepco Holdings, Inc., through its subsidiaries, engages in the transmission, distribution, and supply of electricity. The company also distributes and supplies natural gas. The company has a P/E ratio of 31.72. The average volume for Pepco Holdings has been 1,993,600 shares per day over the past 30 days. Pepco Holdings has a market cap of $5.1 billion and is part of the utilities industry. Shares are up 8.4% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Pepco Holdings as a buy. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, good cash flow from operations and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- PEPCO HOLDINGS INC has improved earnings per share by 15.8% 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, PEPCO HOLDINGS INC reported lower earnings of $0.98 versus $1.14 in the prior year. This year, the market expects an improvement in earnings ($1.12 versus $0.98).
- Net operating cash flow has slightly increased to $302.00 million or 2.37% when compared to the same quarter last year. Despite an increase in cash flow, PEPCO HOLDINGS INC's cash flow growth rate is still lower than the industry average growth rate of 23.16%.
- POM, with its decline in revenue, slightly underperformed the industry average of 3.6%. Since the same quarter one year prior, revenues slightly dropped by 3.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- 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 5.3% when compared to the same quarter one year prior, going from $112.00 million to $118.00 million.
- The gross profit margin for PEPCO HOLDINGS INC is currently lower than what is desirable, coming in at 26.71%. Regardless of POM's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 8.77% trails the industry average.
- You can view the full Pepco Holdings Ratings Report.
- Compared to other companies in the Biotechnology industry and the overall market, PDL BIOPHARMA INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- PDL BIOPHARMA INC has improved earnings per share by 12.5% 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, PDL BIOPHARMA INC increased its bottom line by earning $1.47 versus $1.15 in the prior year. This year, the market expects an improvement in earnings ($1.75 versus $1.47).
- Despite its growing revenue, the company underperformed as compared with the industry average of 15.7%. Since the same quarter one year prior, revenues rose by 14.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for PDL BIOPHARMA INC is currently very high, coming in at 91.86%. Regardless of PDLI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PDLI's net profit margin of 57.77% significantly outperformed against the industry.
- You can view the full PDL BioPharma Ratings Report.
- Powered by its strong earnings growth of 147.22% and other important driving factors, this stock has surged by 35.55% 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, KKR should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- KKR & CO LP 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, KKR & CO LP increased its bottom line by earning $2.29 versus $2.23 in the prior year. This year, the market expects an improvement in earnings ($2.39 versus $2.29).
- 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 187.3% when compared to the same quarter one year prior, rising from $96.73 million to $277.91 million.
- KKR, with its decline in revenue, underperformed when compared the industry average of 16.9%. Since the same quarter one year prior, revenues fell by 29.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for KKR & CO LP is currently extremely low, coming in at 13.76%. It has decreased significantly from the same period last year. Despite the weak results of the gross profit margin, the net profit margin of 41.29% has significantly outperformed against the industry average.
- You can view the full KKR Ratings Report.
- Our dividend calendar.