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 5.10%. 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 16.19. The average volume for Altria Group has been 8,863,800 shares per day over the past 30 days. Altria Group has a market cap of $74.9 billion and is part of the tobacco industry. Shares are down 2.1% year-to-date as of the close of trading on Thursday. 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 net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 61.8% when compared to the same quarter one year prior, rising from $44.64 million to $72.21 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 6.9%. Since the same quarter one year prior, revenues slightly increased by 4.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has increased to $58.52 million or 32.13% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 10.91%.
- 36.83% is the gross profit margin for SENIOR HOUSING PPTYS TRUST which we consider to be strong. Regardless of SNH's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SNH's net profit margin of 36.00% significantly outperformed against the industry.
- You can view the full Senior Housing Properties Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 6.9%. Since the same quarter one year prior, revenues slightly increased by 0.8%. 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.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to the other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, CORRECTIONS CORP AMER's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- Net operating cash flow has increased to $85.90 million or 42.67% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 10.91%.
- The net income growth from the same quarter one year ago has exceeded that of the Real Estate Investment Trusts (REITs) industry average, but is less than that of the S&P 500. The net income increased by 4.5% when compared to the same quarter one year prior, going from $45.41 million to $47.47 million.
- You can view the full Corrections Corporation of America Ratings Report.
- Our dividend calendar.