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." BCE (NYSE: BCE) shares currently have a dividend yield of 5.10%. BCE Inc., a communications company, provides broadband communication services to residential and business customers in Canada. The company operates through four segments: Bell Wireline, Bell Wireless, Bell Media, and Bell Aliant. The company has a P/E ratio of 19.10. The average volume for BCE has been 540,600 shares per day over the past 30 days. BCE has a market cap of $34.9 billion and is part of the telecommunications industry. Shares are up 4.6% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates BCE as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, growth in earnings per share, increase in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- BCE's revenue growth has slightly outpaced the industry average of 3.3%. Since the same quarter one year prior, revenues slightly increased by 3.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- 48.38% is the gross profit margin for BCE INC which we consider to be strong. Regardless of BCE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, BCE's net profit margin of 12.70% compares favorably to the industry average.
- BCE INC has improved earnings per share by 8.2% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, BCE INC reported lower earnings of $2.54 versus $3.17 in the prior year.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Diversified Telecommunication Services industry. The net income increased by 8.2% when compared to the same quarter one year prior, going from $599.00 million to $648.00 million.
- 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. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full BCE Ratings Report.