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." Golar LNG (NASDAQ: GLNG) shares currently have a dividend yield of 4.10%. Golar LNG Limited, a midstream liquefied natural gas (LNG) company, is engaged in the transportation, regasification and liquefaction, and trading of LNG. The company operates in two segments, Vessel Operations and Commodity Trading. The company has a P/E ratio of 27.49. The average volume for Golar LNG has been 948,200 shares per day over the past 30 days. Golar LNG has a market cap of $3.5 billion and is part of the transportation industry. Shares are up 20.4% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Golar LNG as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share. Highlights from the ratings report include:
- The current debt-to-equity ratio, 0.40, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, GLNG has a quick ratio of 1.86, which demonstrates the ability of the company to cover short-term liquidity needs.
- Compared to its closing price of one year ago, GLNG's share price has jumped by 28.78%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp 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 other strengths this company displays justify these higher price levels.
- GLNG, with its very weak revenue results, has greatly underperformed against the industry average of 3.3%. Since the same quarter one year prior, revenues plummeted by 80.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for GOLAR LNG LTD is currently extremely low, coming in at 9.78%. It has decreased significantly from the same period last year. Despite the weak results of the gross profit margin, the net profit margin of 21.82% has significantly outperformed against the industry average.
- Net operating cash flow has significantly decreased to $10.25 million or 89.48% 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 Golar LNG Ratings Report.