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." Ensco (NYSE: ESV) shares currently have a dividend yield of 5.90%. Ensco plc provides offshore contract drilling services to the oil and gas industry worldwide. The company operates through three segments: Floaters, Jackups, and Other. The company has a P/E ratio of 8.04. The average volume for Ensco has been 2,696,400 shares per day over the past 30 days. Ensco has a market cap of $11.9 billion and is part of the energy industry. Shares are down 10.6% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Ensco as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- ESV's revenue growth has slightly outpaced the industry average of 8.2%. Since the same quarter one year prior, revenues rose by 15.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- ENSCO PLC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ENSCO PLC increased its bottom line by earning $6.09 versus $5.24 in the prior year. This year, the market expects an improvement in earnings ($6.19 versus $6.09).
- The gross profit margin for ENSCO PLC is rather high; currently it is at 50.96%. Regardless of ESV's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ESV's net profit margin of 28.78% significantly outperformed against the industry.
- ESV has underperformed the S&P 500 Index, declining 10.31% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Net operating cash flow has declined marginally to $547.90 million or 8.60% 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.
- You can view the full Ensco Ratings Report.
- The revenue growth greatly exceeded the industry average of 7.8%. Since the same quarter one year prior, revenues rose by 27.4%. Growth in the company's revenue appears to have helped boost 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 Oil, Gas & Consumable Fuels industry. The net income increased by 78.9% when compared to the same quarter one year prior, rising from -$158.71 million to -$33.43 million.
- The gross profit margin for ENERPLUS CORP is rather high; currently it is at 54.64%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -8.46% is in-line with the industry average.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ENERPLUS CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite currently having a low debt-to-equity ratio of 0.53, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.35 is very low and demonstrates very weak liquidity.
- You can view the full Enerplus Ratings Report.
- The current debt-to-equity ratio, 0.41, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that POT's debt-to-equity ratio is low, the quick ratio, which is currently 0.65, displays a potential problem in covering short-term cash needs.
- 38.74% is the gross profit margin for POTASH CORP SASK INC which we consider to be strong. Regardless of POT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, POT's net profit margin of 14.92% compares favorably to the industry average.
- POT, with its decline in revenue, underperformed when compared the industry average of 12.6%. Since the same quarter one year prior, revenues slightly dropped by 6.2%. 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 Chemicals industry. The net income has significantly decreased by 45.4% when compared to the same quarter one year ago, falling from $421.00 million to $230.00 million.
- Net operating cash flow has decreased to $656.00 million or 24.77% 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.
- You can view the full Potash Corporation of Saskatchewan Ratings Report.
- Our dividend calendar.