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." Consolidated Edison (NYSE: ED) shares currently have a dividend yield of 4.70%. Consolidated Edison, Inc. is engaged in regulated electric, gas, and steam delivery businesses in the United States. The company has a P/E ratio of 15.07. The average volume for Consolidated Edison has been 2,426,300 shares per day over the past 30 days. Consolidated Edison has a market cap of $15.6 billion and is part of the utilities industry. Shares are down 3.1% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Consolidated Edison as a buy. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- Net operating cash flow has increased to $1,314.00 million or 36.73% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -2.65%.
- CONSOLIDATED EDISON INC has improved earnings per share by 12.9% 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, CONSOLIDATED EDISON INC reported lower earnings of $3.61 versus $3.86 in the prior year. This year, the market expects an improvement in earnings ($3.75 versus $3.61).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.9%. Since the same quarter one year prior, revenues slightly dropped by 1.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Multi-Utilities industry average. The net income increased by 13.0% when compared to the same quarter one year prior, going from $207.00 million to $234.00 million.
- You can view the full Consolidated Edison Ratings Report.
- The current debt-to-equity ratio, 0.45, is low and is below the industry average, implying that there has been successful management of debt levels.
- Compared to its closing price of one year ago, AZN's share price has jumped by 31.99%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- ASTRAZENECA PLC 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 suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, ASTRAZENECA PLC reported lower earnings of $2.04 versus $4.94 in the prior year. This year, the market expects an improvement in earnings ($4.25 versus $2.04).
- AZN, with its decline in revenue, slightly underperformed the industry average of 1.6%. Since the same quarter one year prior, revenues slightly dropped by 2.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Pharmaceuticals industry. The net income has significantly decreased by 134.8% when compared to the same quarter one year ago, falling from $1,507.00 million to -$524.00 million.
- You can view the full AstraZeneca Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 0.9%. 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 debt-to-equity ratio is somewhat low, currently at 0.83, 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 0.19 is very weak and demonstrates a lack of ability to pay short-term obligations.
- PINNACLE WEST CAPITAL CORP's earnings per share declined by 8.3% 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, PINNACLE WEST CAPITAL CORP increased its bottom line by earning $3.66 versus $3.50 in the prior year. This year, the market expects an improvement in earnings ($3.71 versus $3.66).
- Net operating cash flow has increased to $270.98 million or 12.13% when compared to the same quarter last year. Despite an increase in cash flow, PINNACLE WEST CAPITAL CORP's cash flow growth rate is still lower than the industry average growth rate of 42.84%.
- You can view the full Pinnacle West Capital Ratings Report.
- Our dividend calendar.