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." Consolidated Communications (NASDAQ: CNSL) shares currently have a dividend yield of 7.10%. Consolidated Communications Holdings, Inc., together with its subsidiaries, provides a range of communications services to residential and business clients in Illinois, Texas, Pennsylvania, California, Kansas, and Missouri. The company has a P/E ratio of 28.88. The average volume for Consolidated Communications has been 235,600 shares per day over the past 30 days. Consolidated Communications has a market cap of $884.3 million and is part of the telecommunications industry. Shares are up 11.8% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Consolidated Communications 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, good cash flow from operations, solid stock price performance and notable return on equity. 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:
- CONSOLIDATED COMM HLDGS INC has improved earnings per share by 17.6% 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 year. We feel that this trend should continue. During the past fiscal year, CONSOLIDATED COMM HLDGS INC increased its bottom line by earning $0.74 versus $0.15 in the prior year. This year, the market expects an improvement in earnings ($0.91 versus $0.74).
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Diversified Telecommunication Services industry average. The net income increased by 22.7% when compared to the same quarter one year prior, going from $6.78 million to $8.32 million.
- Net operating cash flow has increased to $48.39 million or 33.71% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 1.70%.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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.
- 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 Diversified Telecommunication Services industry and the overall market on the basis of return on equity, CONSOLIDATED COMM HLDGS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full Consolidated Communications Ratings Report.