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." China Nepstar Chain Drugstore (NYSE: NPD) shares currently have a dividend yield of 11.20%. China Nepstar Chain Drugstore Ltd., through its subsidiaries, owns and operates a retail drugstore chain that sells a range of pharmaceutical and other healthcare products in the People's Republic of China. The company has a P/E ratio of 38.29. The average volume for China Nepstar Chain Drugstore has been 169,700 shares per day over the past 30 days. China Nepstar Chain Drugstore has a market cap of $264.6 million and is part of the retail industry. Shares are up 38.6% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates China Nepstar Chain Drugstore as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, 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 revenue growth came in higher than the industry average of 7.9%. Since the same quarter one year prior, revenues rose by 10.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- NPD 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 1.24, which illustrates the ability to avoid short-term cash problems.
- This stock has managed to rise its share value by 41.97% over the past twelve months. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
- 42.40% is the gross profit margin for CHINA NEPSTAR CHAIN DRUG-ADS which we consider to be strong. Regardless of NPD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -0.67% trails the industry average.
- CHINA NEPSTAR CHAIN DRUG-ADS has shown no change in earnings for its most recently reported quarter when compared with the same quarter a year earlier. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CHINA NEPSTAR CHAIN DRUG-ADS increased its bottom line by earning $0.14 versus $0.06 in the prior year. For the next year, the market is expecting a contraction of 73.6% in earnings ($0.04 versus $0.14).
- You can view the full China Nepstar Chain Drugstore Ratings Report.