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 which could 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." Consolidated Communications (NASDAQ: CNSL) shares currently have a dividend yield of 7.80%. Consolidated Communications Holdings, Inc., together with its subsidiaries, provides telecommunications services to residential and business customers in Illinois, Texas, Pennsylvania, California, Kansas, and Missouri. The company has a P/E ratio of 27.38. The average volume for Consolidated Communications has been 217,800 shares per day over the past 30 days. Consolidated Communications has a market cap of $800.9 million and is part of the telecommunications industry. Shares are up 2.9% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Consolidated Communications as a hold. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, notable return on equity and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and weak operating cash flow. Highlights from the ratings report include:
- CONSOLIDATED COMM HLDGS INC has improved earnings per share by 14.3% 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 year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, CONSOLIDATED COMM HLDGS INC increased its bottom line by earning $0.74 versus $0.15 in the prior year. This year, the market expects an improvement in earnings ($0.96 versus $0.74).
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Diversified Telecommunication Services industry and the overall market, CONSOLIDATED COMM HLDGS INC's return on equity exceeds that of both the industry average and the S&P 500.
- The gross profit margin for CONSOLIDATED COMM HLDGS INC is rather high; currently it is at 62.37%. Regardless of CNSL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CNSL's net profit margin of 2.12% is significantly lower than the industry average.
- Net operating cash flow has decreased to $43.72 million or 14.81% 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 debt-to-equity ratio is very high at 8.27 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, CNSL has a quick ratio of 0.57, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full Consolidated Communications Ratings Report.