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 "Hold."CenturyLink (NYSE: CTL) shares currently have a dividend yield of 6.80%. CenturyLink, Inc. operates as an integrated telecommunications company in the United States. The average volume for CenturyLink has been 5,932,100 shares per day over the past 30 days. CenturyLink has a market cap of $18.4 billion and is part of the telecommunications industry. Shares are up 0% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates CenturyLink as a hold. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, 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 disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- CENTURYLINK INC has improved earnings per share by 10.8% 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, CENTURYLINK INC swung to a loss, reporting -$0.43 versus $1.24 in the prior year. This year, the market expects an improvement in earnings ($2.58 versus -$0.43).
- CTL, with its decline in revenue, slightly underperformed the industry average of 0.3%. Since the same quarter one year prior, revenues slightly dropped by 0.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- CTL has underperformed the S&P 500 Index, declining 9.94% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- 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 Diversified Telecommunication Services industry and the overall market, CENTURYLINK INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full CenturyLink Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 7.8%. Since the same quarter one year prior, revenues slightly increased by 0.3%. 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.
- RIG's debt-to-equity ratio of 0.64 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that RIG's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.52 is high and demonstrates strong liquidity.
- Net operating cash flow has decreased to $773.00 million or 16.25% 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.
- 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 Energy Equipment & Services industry. The net income has significantly decreased by 48.9% when compared to the same quarter one year ago, falling from $456.00 million to $233.00 million.
- You can view the full Transocean Ratings Report.
- The revenue growth greatly exceeded the industry average of 32.4%. Since the same quarter one year prior, revenues slightly increased by 2.1%. 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.
- Net operating cash flow has remained constant at $481.00 million with no significant change when compared to the same quarter last year. Along with maintaining stable cash flow from operations, the firm exceeded 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. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- 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 15.7% when compared to the same quarter one year ago, dropping from $134.00 million to $113.00 million.
- Currently the debt-to-equity ratio of 1.93 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated.
- You can view the full CenterPoint Energy Ratings Report.
- Our dividend calendar.