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." Cedar Fair (NYSE: FUN) shares currently have a dividend yield of 5.50%. Cedar Fair, L.P. owns and operates amusement and water parks in the United States and Canada. As of March 3, 2014, the company operated 11 amusement parks, 3 outdoor water parks, 1 indoor water park, and 5 hotels. The company has a P/E ratio of 27.63. The average volume for Cedar Fair has been 187,200 shares per day over the past 30 days. Cedar Fair has a market cap of $2.8 billion and is part of the leisure industry. Shares are up 3.1% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Cedar Fair as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and solid stock price performance. 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 revenue growth came in higher than the industry average of 3.5%. Since the same quarter one year prior, revenues slightly increased by 7.6%. 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.
- Compared to its closing price of one year ago, FUN's share price has jumped by 29.43%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, FUN should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- 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 Hotels, Restaurants & Leisure industry and the overall market, CEDAR FAIR -LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- CEDAR FAIR -LP 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, CEDAR FAIR -LP increased its bottom line by earning $1.94 versus $1.81 in the prior year. This year, the market expects an improvement in earnings ($2.91 versus $1.94).
- Net operating cash flow has decreased to $7.50 million or 18.35% when compared to the same quarter last year. Despite a decrease in cash flow CEDAR FAIR -LP is still fairing well by exceeding its industry average cash flow growth rate of -32.46%.
- You can view the full Cedar Fair Ratings Report.