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." Transocean (NYSE: RIG) shares currently have a dividend yield of 5.40%. Transocean Ltd., together with its subsidiaries, provides offshore contract drilling services for oil and gas wells worldwide. The company provides deepwater and harsh environment drilling, oil and gas drilling management, and drilling engineering and drilling project management services. The company has a P/E ratio of 10.72. The average volume for Transocean has been 5,532,100 shares per day over the past 30 days. Transocean has a market cap of $15.0 billion and is part of the energy industry. Shares are down 15.5% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Transocean as a hold. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and revenue growth. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year. Highlights from the ratings report include:
- TRANSOCEAN LTD has improved earnings per share by 42.7% 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, TRANSOCEAN LTD increased its bottom line by earning $3.87 versus $2.24 in the prior year. This year, the market expects an improvement in earnings ($4.25 versus $3.87).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Energy Equipment & Services industry average. The net income increased by 42.0% when compared to the same quarter one year prior, rising from $321.00 million to $456.00 million.
- Net operating cash flow has increased to $136.00 million or 28.30% when compared to the same quarter last year. Despite an increase in cash flow, TRANSOCEAN LTD's cash flow growth rate is still lower than the industry average growth rate of 48.22%.
- 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. In comparison to the other companies in the Energy Equipment & Services industry and the overall market, TRANSOCEAN LTD's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- RIG has underperformed the S&P 500 Index, declining 24.96% 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.
- You can view the full Transocean Ratings Report.
- LNCO has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, LNCO has a quick ratio of 2.22, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for LINNCO LLC is currently very high, coming in at 100.00%. LNCO has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, LNCO's net profit margin of 330.80% significantly outperformed against the industry.
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LINNCO LLC's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 29.00%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 3075.40% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 4480.9% when compared to the same quarter one year ago, falling from $21.16 million to -$926.97 million.
- You can view the full LinnCo Ratings Report.
- FE's revenue growth has slightly outpaced the industry average of 9.1%. Since the same quarter one year prior, revenues rose by 12.5%. 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 net income growth from the same quarter one year ago has exceeded that of the Electric Utilities industry average, but is less than that of the S&P 500. The net income increased by 6.1% when compared to the same quarter one year prior, going from $196.00 million to $208.00 million.
- FIRSTENERGY CORP's earnings per share declined by 37.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, FIRSTENERGY CORP reported lower earnings of $0.90 versus $1.80 in the prior year. This year, the market expects an improvement in earnings ($2.50 versus $0.90).
- The gross profit margin for FIRSTENERGY CORP is rather low; currently it is at 16.69%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 4.96% trails that of the industry average.
- Net operating cash flow has significantly decreased to -$92.00 million or 284.00% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full FirstEnergy Ratings Report.
- Our dividend calendar.