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." ALLETE Dividend Yield: 4.10% ALLETE (NYSE: ALE) shares currently have a dividend yield of 4.10%. ALLETE, Inc., together with its subsidiaries, generates, transmits, and distributes electricity in the United States. It operates through Regulated Operations, and Investments and Other segments. The company generates electricity from coal, hydel, wind, and biomass. The company has a P/E ratio of 18.25. The average volume for ALLETE has been 203,200 shares per day over the past 30 days. ALLETE has a market cap of $2.1 billion and is part of the utilities industry. Shares are down 3.2% 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 ALLETE as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- ALE's revenue growth has slightly outpaced the industry average of 5.5%. Since the same quarter one year prior, revenues rose by 10.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- ALLETE INC has improved earnings per share by 14.3% 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, ALLETE INC increased its bottom line by earning $2.63 versus $2.58 in the prior year. This year, the market expects an improvement in earnings ($2.88 versus $2.63).
- The debt-to-equity ratio is somewhat low, currently at 0.94, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.78 is somewhat weak and could be cause for future problems.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Electric Utilities industry average, but is greater than that of the S&P 500. The net income increased by 20.0% when compared to the same quarter one year prior, going from $14.00 million to $16.80 million.
- You can view the full ALLETE Ratings Report.
- 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. 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 net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry average. The net income increased by 13.7% when compared to the same quarter one year prior, going from $34.21 million to $38.90 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.6%. Since the same quarter one year prior, revenues slightly increased by 8.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has increased to $68.99 million or 23.47% when compared to the same quarter last year. In addition, GEO GROUP INC has also modestly surpassed the industry average cash flow growth rate of 17.00%.
- You can view the full GEO Group Ratings Report.
- 36.85% is the gross profit margin for PPL CORP which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 7.96% trails the industry average.
- PPL CORP's earnings per share declined by 46.0% 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 two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, PPL CORP reported lower earnings of $1.74 versus $2.61 in the prior year. This year, the market expects an improvement in earnings ($2.29 versus $1.74).
- PPL, with its decline in revenue, underperformed when compared the industry average of 5.5%. Since the same quarter one year prior, revenues fell by 17.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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. 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.
- Net operating cash flow has declined marginally to $652.00 million or 7.25% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, PPL CORP has marginally lower results.
- You can view the full PPL Ratings Report.
- Our dividend calendar.