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.