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." WGL Holdings (NYSE: WGL) shares currently have a dividend yield of 4.40%. WGL Holdings, Inc., through its subsidiaries, sells and delivers natural gas, and provides energy-related products and services. The company operates in four segments: Regulated Utility, Retail Energy-Marketing, Commercial Energy Systems, and Midstream Energy Services. The company has a P/E ratio of 44.70. The average volume for WGL Holdings has been 353,900 shares per day over the past 30 days. WGL Holdings has a market cap of $2.1 billion and is part of the utilities industry. Shares are unchanged year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates WGL Holdings as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- Net operating cash flow has increased to -$12.61 million or 25.68% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 0.91%.
- The debt-to-equity ratio is somewhat low, currently at 0.82, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.36 is very weak and demonstrates a lack of ability to pay short-term obligations.
- WGL, with its decline in revenue, underperformed when compared the industry average of 16.4%. Since the same quarter one year prior, revenues slightly dropped by 0.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Gas Utilities industry and the overall market on the basis of return on equity, WGL HOLDINGS INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for WGL HOLDINGS INC is currently extremely low, coming in at 8.83%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.78% trails that of the industry average.
- You can view the full WGL Holdings Ratings Report.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.9%. Since the same quarter one year prior, revenues slightly dropped by 2.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- PBF ENERGY 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, PBF ENERGY INC reported lower earnings of $1.35 versus $37.61 in the prior year. This year, the market expects an improvement in earnings ($3.07 versus $1.35).
- Net operating cash flow has significantly decreased to $148.75 million or 56.71% 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.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 31.95%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 93.90% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- You can view the full PBF Energy Ratings Report.
- SO's revenue growth has slightly outpaced the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 6.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has significantly increased by 97.42% to $1,686.00 million when compared to the same quarter last year. In addition, SOUTHERN CO has also vastly surpassed the industry average cash flow growth rate of 42.84%.
- SOUTHERN CO has improved earnings per share by 9.3% 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, SOUTHERN CO reported lower earnings of $1.87 versus $2.67 in the prior year. This year, the market expects an improvement in earnings ($2.76 versus $1.87).
- The gross profit margin for SOUTHERN CO is currently lower than what is desirable, coming in at 33.28%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 10.97% is above that of the industry average.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Electric Utilities industry and the overall market, SOUTHERN CO's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Southern Ratings Report.
- Our dividend calendar.