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." Old Republic International Corporation (NYSE: ORI) shares currently have a dividend yield of 4.40%. Old Republic International Corporation, through its subsidiaries, is engaged in underwriting insurance products primarily in the United States and Canada. The company has a P/E ratio of 8.25. The average volume for Old Republic International Corporation has been 1,253,300 shares per day over the past 30 days. Old Republic International Corporation has a market cap of $4.3 billion and is part of the insurance industry. Shares are down 2.7% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Old Republic International Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, attractive valuation levels and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Highlights from the ratings report include:
- ORI's revenue growth has slightly outpaced the industry average of 8.0%. Since the same quarter one year prior, revenues rose by 12.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- ORI's debt-to-equity ratio is very low at 0.15 and is currently below that of the industry average, implying that there has been very successful management of debt 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 Insurance industry and the overall market, OLD REPUBLIC INTL CORP's return on equity exceeds that of both the industry average and the S&P 500.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full Old Republic International Corporation Ratings Report.
- DUK's revenue growth has slightly outpaced the industry average of 10.4%. Since the same quarter one year prior, revenues rose by 12.6%. 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.
- Net operating cash flow has increased to $1,373.00 million or 25.84% when compared to the same quarter last year. In addition, DUKE ENERGY CORP has also modestly surpassed the industry average cash flow growth rate of 18.73%.
- DUKE ENERGY CORP 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. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, DUKE ENERGY CORP increased its bottom line by earning $3.73 versus $3.06 in the prior year. This year, the market expects an improvement in earnings ($4.58 versus $3.73).
- The gross profit margin for DUKE ENERGY CORP is currently lower than what is desirable, coming in at 34.48%. Regardless of DUK's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -1.46% trails the industry average.
- In its most recent trading session, DUK has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
- You can view the full Duke Energy Corporation Ratings Report.
- The revenue growth came in higher than the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 18.6%. 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.
- 39.03% is the gross profit margin for KINDER MORGAN ENERGY -LP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 18.47% significantly outperformed against the industry average.
- KINDER MORGAN ENERGY -LP 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, KINDER MORGAN ENERGY -LP increased its bottom line by earning $3.80 versus $1.64 in the prior year. For the next year, the market is expecting a contraction of 31.6% in earnings ($2.60 versus $3.80).
- 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 Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, KINDER MORGAN ENERGY -LP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- In its most recent trading session, KMP has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Despite the decline in its share price over the last year, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry. We feel, however, that other strengths this company displays compensate for this.
- You can view the full Kinder Morgan Energy Partners Ratings Report.
- Our dividend calendar.