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." Public Service Enterprise Group (NYSE: PEG) shares currently have a dividend yield of 4.20%. Public Service Enterprise Group Incorporated, through its subsidiaries, operates as an energy company primarily in the Northeastern and Mid Atlantic United States. The company has a P/E ratio of 15.18. The average volume for Public Service Enterprise Group has been 3,460,800 shares per day over the past 30 days. Public Service Enterprise Group has a market cap of $18.0 billion and is part of the utilities industry. Shares are up 10.6% year-to-date as of the close of trading on Monday. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more. TheStreet Ratings rates Public Service Enterprise Group as a buy. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- 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. 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.
- The debt-to-equity ratio is somewhat low, currently at 0.76, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that PEG's debt-to-equity ratio is low, the quick ratio, which is currently 0.54, displays a potential problem in covering short-term cash needs.
- PUBLIC SERVICE ENTRP GRP INC's earnings per share declined by 36.4% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, PUBLIC SERVICE ENTRP GRP INC reported lower earnings of $2.45 versus $2.51 in the prior year. This year, the market expects an improvement in earnings ($2.73 versus $2.45).
- PEG, with its decline in revenue, slightly underperformed the industry average of 7.2%. Since the same quarter one year prior, revenues slightly dropped by 2.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full Public Service Enterprise Group Ratings Report.