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." RR Donnelley & Sons (NASDAQ: RRD) shares currently have a dividend yield of 6.20%. R.R. Donnelley & Sons Company provides integrated communication solutions to private and public sectors worldwide. It operates through Publishing and Retail Services, Variable Print, Strategic Services, and International segments. The company has a P/E ratio of 19.87. The average volume for RR Donnelley & Sons has been 2,146,200 shares per day over the past 30 days. RR Donnelley & Sons has a market cap of $3.4 billion and is part of the diversified services industry. Shares are down 17.6% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates RR Donnelley & Sons as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and generally higher debt management risk. Highlights from the ratings report include:
- RRD's revenue growth has slightly outpaced the industry average of 4.0%. Since the same quarter one year prior, revenues slightly increased by 5.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Commercial Services & Supplies industry and the overall market, DONNELLEY (R R) & SONS CO's return on equity exceeds that of both the industry average and the S&P 500.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Commercial Services & Supplies industry. The net income has significantly decreased by 207.0% when compared to the same quarter one year ago, falling from $27.10 million to -$29.00 million.
- The gross profit margin for DONNELLEY (R R) & SONS CO is rather low; currently it is at 21.89%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -1.08% trails that of the industry average.
- You can view the full RR Donnelley & Sons Ratings Report.