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." B&G Foods (NYSE: BGS) shares currently have a dividend yield of 4.20%. B&G Foods, Inc. manufactures, sells, and distributes shelf-stable food and household products in the United States, Canada, and Puerto Rico. The company has a P/E ratio of 34.20. The average volume for B&G Foods has been 361,100 shares per day over the past 30 days. B&G Foods has a market cap of $1.7 billion and is part of the food & beverage industry. Shares are down 6.3% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates B&G Foods as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth and good cash flow from operations. 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 revenue growth came in higher than the industry average of 2.6%. Since the same quarter one year prior, revenues rose by 15.7%. 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 $31.00 million or 34.17% when compared to the same quarter last year. In addition, B&G FOODS INC has also vastly surpassed the industry average cash flow growth rate of -25.75%.
- B&G FOODS INC's earnings per share declined by 10.8% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, B&G FOODS INC reported lower earnings of $0.98 versus $1.21 in the prior year. This year, the market expects an improvement in earnings ($1.60 versus $0.98).
- In its most recent trading session, BGS has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- The gross profit margin for B&G FOODS INC is currently lower than what is desirable, coming in at 34.48%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 8.97% is above that of the industry average.
- You can view the full B&G Foods Ratings Report.