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." Vector Group (NYSE: VGR) shares currently have a dividend yield of 7.90%. Vector Group Ltd., through its subsidiaries, manufactures and sells cigarettes in the United States. The company operates through Tobacco and Real Estate segments. The company has a P/E ratio of 53.00. The average volume for Vector Group has been 1,285,200 shares per day over the past 30 days. Vector Group has a market cap of $2.0 billion and is part of the tobacco industry. Shares are up 25.7% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Vector Group as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 2.9%. Since the same quarter one year prior, revenues rose by 23.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for VECTOR GROUP LTD is rather high; currently it is at 55.89%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 34.95% significantly outperformed against the industry average.
- VECTOR GROUP LTD 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 year. During the past fiscal year, VECTOR GROUP LTD increased its bottom line by earning $0.33 versus $0.29 in the prior year.
- Powered by its strong earnings growth of 357.61% and other important driving factors, this stock has surged by 33.79% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- You can view the full Vector Group Ratings Report.