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 "Buy." Altria Group (NYSE: MO) shares currently have a dividend yield of 5.30%. Altria Group, Inc., through its subsidiaries, manufactures and sells cigarettes, smokeless products, and wine in the United States and internationally. The company has a P/E ratio of 16.10. The average volume for Altria Group has been 9,054,400 shares per day over the past 30 days. Altria Group has a market cap of $72.5 billion and is part of the tobacco industry. Shares are down 4.7% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Altria Group as a buy. The company's strengths can be seen in multiple areas, such as its expanding profit margins, notable return on equity 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:
- The gross profit margin for ALTRIA GROUP INC is rather high; currently it is at 55.79%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, MO's net profit margin of 11.08% significantly trails the industry average.
- ALTRIA GROUP INC 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. 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, ALTRIA GROUP INC increased its bottom line by earning $2.26 versus $2.06 in the prior year. This year, the market expects an improvement in earnings ($2.57 versus $2.26).
- MO, with its decline in revenue, slightly underperformed the industry average of 3.7%. Since the same quarter one year prior, revenues slightly dropped by 1.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Tobacco industry and the overall market, ALTRIA GROUP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- You can view the full Altria Group Ratings Report.
- The revenue growth came in higher than the industry average of 16.6%. Since the same quarter one year prior, revenues slightly increased by 7.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 83.6% when compared to the same quarter one year prior, rising from $46.49 million to $85.36 million.
- The gross profit margin for PROSPECT CAPITAL CORP is rather high; currently it is at 68.21%. Regardless of PSEC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PSEC's net profit margin of 47.93% significantly outperformed against the industry.
- Net operating cash flow has significantly increased by 52.42% to -$290.63 million when compared to the same quarter last year. Despite an increase in cash flow of 52.42%, PROSPECT CAPITAL CORP is still growing at a significantly lower rate than the industry average of 124.49%.
- You can view the full Prospect Capital Corporation Ratings Report.
- The revenue growth came in higher than the industry average of 6.7%. Since the same quarter one year prior, revenues rose by 26.8%. 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.
- The gross profit margin for MACERICH CO is currently lower than what is desirable, coming in at 28.43%. Regardless of MAC's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, MAC's net profit margin of 48.06% significantly outperformed against the industry.
- In its most recent trading session, MAC 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.
- MACERICH CO 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. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, MACERICH CO reported lower earnings of $0.98 versus $2.07 in the prior year. For the next year, the market is expecting a contraction of 25.5% in earnings ($0.73 versus $0.98).
- You can view the full Macerich Company Ratings Report.
- Our dividend calendar.