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."Ensco (NYSE: ESV) shares currently have a dividend yield of 5.70%. Ensco plc provides offshore contract drilling services to the oil and gas industry worldwide. The company operates through three segments: Floaters, Jackups, and Other. The company has a P/E ratio of 8.67. The average volume for Ensco has been 2,598,100 shares per day over the past 30 days. Ensco has a market cap of $12.3 billion and is part of the energy industry. Shares are down 8% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Ensco as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, attractive valuation levels and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Highlights from the ratings report include:
- ESV's revenue growth has slightly outpaced the industry average of 8.1%. Since the same quarter one year prior, revenues rose by 15.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- ENSCO PLC 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, ENSCO PLC increased its bottom line by earning $6.09 versus $5.24 in the prior year. This year, the market expects an improvement in earnings ($6.43 versus $6.09).
- 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 64.6% when compared to the same quarter one year prior, rising from $219.50 million to $361.40 million.
- The gross profit margin for ENSCO PLC is rather high; currently it is at 50.96%. Regardless of ESV's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ESV's net profit margin of 28.78% significantly outperformed against the industry.
- You can view the full Ensco Ratings Report.
- CONSOLIDATED EDISON INC has improved earnings per share by 12.9% 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, CONSOLIDATED EDISON INC reported lower earnings of $3.61 versus $3.86 in the prior year. This year, the market expects an improvement in earnings ($3.75 versus $3.61).
- Despite the weak revenue results, ED has significantly outperformed against the industry average of 32.9%. Since the same quarter one year prior, revenues slightly dropped by 1.2%. 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 the Multi-Utilities industry average. The net income increased by 13.0% when compared to the same quarter one year prior, going from $207.00 million to $234.00 million.
- The gross profit margin for CONSOLIDATED EDISON INC is currently lower than what is desirable, coming in at 25.71%. Regardless of ED'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 8.16% trails the industry average.
- In its most recent trading session, ED 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. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full Consolidated Edison Ratings Report.
- The revenue growth came in higher than the industry average of 5.2%. Since the same quarter one year prior, revenues slightly increased by 7.1%. 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.
- 43.14% is the gross profit margin for SIX FLAGS ENTERTAINMENT CORP which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 8.63% trails the industry average.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. 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.
- SIX FLAGS ENTERTAINMENT CORP 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 year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, SIX FLAGS ENTERTAINMENT CORP reported lower earnings of $1.20 versus $3.04 in the prior year. This year, the market expects an improvement in earnings ($1.40 versus $1.20).
- 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 Hotels, Restaurants & Leisure industry and the overall market, SIX FLAGS ENTERTAINMENT CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- You can view the full Six Flags Entertainment Ratings Report.
- Our dividend calendar.