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 "Hold." Valley National Bancorp (NYSE: VLY) shares currently have a dividend yield of 4.40%. Valley National Bancorp operates as the bank holding company for the Valley National Bank that provides commercial, retail, and trust and investment services. The company has a P/E ratio of 14.96. The average volume for Valley National Bancorp has been 1,804,600 shares per day over the past 30 days. Valley National Bancorp has a market cap of $2.0 billion and is part of the banking industry. Shares are down 2.1% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Valley National Bancorp as a hold. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, increase in net income and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- The net income growth from the same quarter one year ago has exceeded that of the Commercial Banks industry average, but is less than that of the S&P 500. The net income increased by 8.1% when compared to the same quarter one year prior, going from $31.31 million to $33.84 million.
- The gross profit margin for VALLEY NATIONAL BANCORP is currently very high, coming in at 75.07%. Regardless of VLY'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 19.60% trails the industry average.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, VALLEY NATIONAL BANCORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Net operating cash flow has decreased to $35.20 million or 12.73% when compared to the same quarter last year. Despite a decrease in cash flow VALLEY NATIONAL BANCORP is still fairing well by exceeding its industry average cash flow growth rate of -42.09%.
- You can view the full Valley National Bancorp Ratings Report.