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." Public Service Enterprise Group (NYSE: PEG) shares currently have a dividend yield of 4.10%. Public Service Enterprise Group Incorporated, through its subsidiaries, operates as an energy company primarily in the northeastern and mid Atlantic United States. The company has a P/E ratio of 14.75. The average volume for Public Service Enterprise Group has been 4,111,500 shares per day over the past 30 days. Public Service Enterprise Group has a market cap of $18.3 billion and is part of the utilities industry. Shares are up 12.8% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Public Service Enterprise Group as a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- Net operating cash flow has significantly increased by 51.89% to $723.00 million when compared to the same quarter last year. In addition, PUBLIC SERVICE ENTRP GRP INC has also vastly surpassed the industry average cash flow growth rate of -48.32%.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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.
- Despite the weak revenue results, PEG has outperformed against the industry average of 32.4%. Since the same quarter one year prior, revenues slightly dropped by 3.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- PUBLIC SERVICE ENTRP GRP INC's earnings per share declined by 11.4% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, PUBLIC SERVICE ENTRP GRP INC reported lower earnings of $2.45 versus $2.51 in the prior year. This year, the market expects an improvement in earnings ($2.65 versus $2.45).
- 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 Multi-Utilities industry. The net income has decreased by 10.7% when compared to the same quarter one year ago, dropping from $224.00 million to $200.00 million.
- You can view the full Public Service Enterprise Group Ratings Report.