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." Lamar Advertising (NASDAQ: LAMR) shares currently have a dividend yield of 6.60%. Lamar Advertising Company operates as an outdoor advertising company in the United States. The company has a P/E ratio of 105.58. The average volume for Lamar Advertising has been 1,544,000 shares per day over the past 30 days. Lamar Advertising has a market cap of $4.1 billion and is part of the media industry. Shares are down 3.4% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Lamar Advertising 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, revenue growth, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated. Highlights from the ratings report include:
- LAMAR ADVERTISING CO 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 two years. We feel that this trend should continue. During the past fiscal year, LAMAR ADVERTISING CO increased its bottom line by earning $0.37 versus $0.10 in the prior year. This year, the market expects an improvement in earnings ($1.03 versus $0.37).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Media industry. The net income increased by 52.9% when compared to the same quarter one year prior, rising from -$10.26 million to -$4.84 million.
- LAMR's revenue growth trails the industry average of 14.9%. Since the same quarter one year prior, revenues slightly increased by 3.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has increased to $62.58 million or 21.00% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 6.08%.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. 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.
- You can view the full Lamar Advertising Ratings Report.