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 4.80%. 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 8,364,800 shares per day over the past 30 days. Altria Group has a market cap of $79.7 billion and is part of the tobacco industry. Shares are up 4.5% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Altria Group as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- 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.
- Net operating cash flow has increased to $2,125.00 million or 18.51% when compared to the same quarter last year. In addition, ALTRIA GROUP INC has also vastly surpassed the industry average cash flow growth rate of -35.38%.
- ALTRIA GROUP INC's earnings per share declined by 14.5% 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, 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).
- The gross profit margin for ALTRIA GROUP INC is rather high; currently it is at 57.41%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, MO's net profit margin of 29.31% compares favorably to the industry average.
- 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.
- You can view the full Altria Group Ratings Report.
- DUK's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 7.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- DUKE ENERGY CORP 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. We feel that this trend should continue. During the past fiscal year, DUKE ENERGY CORP increased its bottom line by earning $3.73 versus $3.06 in the prior year. This year, the market expects an improvement in earnings ($4.55 versus $3.73).
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Electric Utilities industry average. The net income increased by 58.2% when compared to the same quarter one year prior, rising from $435.00 million to $688.00 million.
- Net operating cash flow has increased to $1,392.00 million or 10.03% when compared to the same quarter last year. Despite an increase in cash flow, DUKE ENERGY CORP's cash flow growth rate is still lower than the industry average growth rate of 44.78%.
- The debt-to-equity ratio is somewhat low, currently at 0.99, 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 0.42 is very weak and demonstrates a lack of ability to pay short-term obligations.
- You can view the full Duke Energy Corporation Ratings Report.
- HAWAIIAN ELECTRIC INDS 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. During the past fiscal year, HAWAIIAN ELECTRIC INDS increased its bottom line by earning $1.62 versus $1.43 in the prior year. This year, the market expects an improvement in earnings ($1.63 versus $1.62).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electric Utilities industry. The net income increased by 175.9% when compared to the same quarter one year prior, rising from $14.31 million to $39.49 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Electric Utilities industry and the overall market on the basis of return on equity, HAWAIIAN ELECTRIC INDS has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- HE, with its decline in revenue, slightly underperformed the industry average of 3.4%. Since the same quarter one year prior, revenues slightly dropped by 1.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- Even though the current debt-to-equity ratio is 1.05, it is still below the industry average, suggesting that this level of debt is acceptable within the Electric Utilities industry.
- You can view the full Hawaiian Electric Industries Ratings Report.
- Our dividend calendar.