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." Compuware (NASDAQ: CPWR) shares currently have a dividend yield of 5.10%. Compuware Corporation provides services, software, and practices for information technology (IT) organizations worldwide. The company has a P/E ratio of 51.32. The average volume for Compuware has been 1,428,800 shares per day over the past 30 days. Compuware has a market cap of $2.1 billion and is part of the computer software & services industry. Shares are down 13% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Compuware as a buy. 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, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- COMPUWARE 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, COMPUWARE CORP turned its bottom line around by earning $0.27 versus -$0.08 in the prior year. This year, the market expects an improvement in earnings ($0.42 versus $0.27).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Software industry. The net income increased by 131.8% when compared to the same quarter one year prior, rising from -$63.65 million to $20.25 million.
- CPWR 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. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.28, which illustrates the ability to avoid short-term cash problems.
- Net operating cash flow has increased to $102.28 million or 22.57% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 10.35%.
- You can view the full Compuware Ratings Report.
- Compared to its closing price of one year ago, FTR's share price has jumped by 36.70%, 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.
- 44.89% is the gross profit margin for FRONTIER COMMUNICATIONS CORP which we consider to be strong. Regardless of FTR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.40% trails the industry average.
- FRONTIER COMMUNICATIONS CORP's earnings per share declined by 20.0% 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 year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, FRONTIER COMMUNICATIONS CORP reported lower earnings of $0.12 versus $0.14 in the prior year. This year, the market expects an improvement in earnings ($0.21 versus $0.12).
- FTR, with its decline in revenue, slightly underperformed the industry average of 3.3%. Since the same quarter one year prior, revenues slightly dropped by 4.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Although FTR's debt-to-equity ratio of 2.03 is very high, it is currently less than that of the industry average. Even though the debt-to-equity ratio is weak, FTR's quick ratio is somewhat strong at 1.07, demonstrating the ability to handle short-term liquidity needs.
- You can view the full Frontier Communications Ratings Report.
- The revenue growth greatly exceeded the industry average of 3.0%. Since the same quarter one year prior, revenues rose by 37.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- This stock has managed to rise its share value by 45.57% over the past twelve months. Regarding the stock's future course, although almost any stock can fall in a broad market decline, ENLK should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Oil, Gas & Consumable Fuels industry average. The net income increased by 50.0% when compared to the same quarter one year prior, rising from $29.40 million to $44.10 million.
- Net operating cash flow has significantly increased by 1174.06% to $121.10 million when compared to the same quarter last year. In addition, ENLINK MIDSTREAM PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of 17.46%.
- ENLINK MIDSTREAM PARTNERS LP has shown improvement in its earnings for its most recently reported quarter when compared with the same quarter a year earlier. 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, ENLINK MIDSTREAM PARTNERS LP reported poor results of -$1.56 versus -$1.01 in the prior year. This year, the market expects an improvement in earnings ($0.35 versus -$1.56).
- You can view the full EnLink Midstream Partners Ratings Report.
- Our dividend calendar.