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." Greenhill (NYSE: GHL) shares currently have a dividend yield of 4.10%. Greenhill & Co., Inc., together with its subsidiaries, operates as an independent investment bank for corporations, partnerships, institutions, and governments worldwide. The company provides financial advice on mergers, acquisitions, restructurings, financings, and capital raising. The company has a P/E ratio of 39.77. The average volume for Greenhill has been 490,500 shares per day over the past 30 days. Greenhill has a market cap of $1.2 billion and is part of the financial services industry. Shares are down 23.9% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Greenhill as a hold. Among the primary strengths of the company is its generally strong cash flow from operations. At the same time, however, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and premium valuation. Highlights from the ratings report include:
- Net operating cash flow has increased to $22.38 million or 38.29% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 15.20%.
- The revenue fell significantly faster than the industry average of 5.1%. Since the same quarter one year prior, revenues fell by 45.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- GREENHILL & CO INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, GREENHILL & CO INC increased its bottom line by earning $1.56 versus $1.38 in the prior year. For the next year, the market is expecting a contraction of 1.9% in earnings ($1.53 versus $1.56).
- 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 Capital Markets industry. The net income has significantly decreased by 98.3% when compared to the same quarter one year ago, falling from $13.62 million to $0.24 million.
- The share price of GREENHILL & CO INC has not done very well: it is down 7.85% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- You can view the full Greenhill Ratings Report.