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 "Sell."Windstream Holdings Dividend Yield: 13.40% Windstream Holdings (NASDAQ: WIN) shares currently have a dividend yield of 13.40%. Windstream Holdings, Inc. provides communications and technology solutions in the United States. It offers managed services and cloud computing services to businesses, as well as broadband, voice, and video services to consumers primarily in rural markets. The average volume for Windstream Holdings has been 7,326,700 shares per day over the past 30 days. Windstream Holdings has a market cap of $4.5 billion and is part of the telecommunications industry. Shares are down 9.2% year-to-date as of the close of trading on Tuesday. EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE. TheStreet Ratings rates Windstream Holdings as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- 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 Diversified Telecommunication Services industry. The net income has significantly decreased by 165.4% when compared to the same quarter one year ago, falling from $118.40 million to -$77.50 million.
- The debt-to-equity ratio is very high at 38.72 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.33, which clearly demonstrates the inability to cover short-term cash needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Diversified Telecommunication Services industry and the overall market, WINDSTREAM HOLDINGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has declined marginally to $354.70 million or 1.11% when compared to the same quarter last year. Despite a decrease in cash flow WINDSTREAM HOLDINGS INC is still fairing well by exceeding its industry average cash flow growth rate of -27.14%.
- The share price of WINDSTREAM HOLDINGS INC has not done very well: it is down 6.56% 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. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- You can view the full Windstream Holdings Ratings Report.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LINNCO LLC's return on equity significantly trails that of both the industry average and the S&P 500.
- LNCO's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 60.92%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 37.5% when compared to the same quarter one year ago, falling from -$926.97 million to -$1,274.44 million.
- LNCO, with its very weak revenue results, has greatly underperformed against the industry average of 19.9%. Since the same quarter one year prior, revenues plummeted by 627.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for LINNCO LLC is currently very high, coming in at 100.00%. LNCO has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, LNCO's net profit margin of 62.48% significantly outperformed against the industry.
- You can view the full LinnCo Ratings Report.
- The gross profit margin for THERAVANCE INC is currently extremely low, coming in at 1.79%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, THRX's net profit margin of -218.76% significantly underperformed when compared to the industry average.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 32.97%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 75.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- THERAVANCE 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. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, THERAVANCE INC reported poor results of -$0.66 versus -$0.30 in the prior year. This year, the market expects an improvement in earnings (-$0.14 versus -$0.66).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 68.1% when compared to the same quarter one year prior, rising from -$49.93 million to -$15.93 million.
- Net operating cash flow has significantly increased by 88.46% to -$4.61 million when compared to the same quarter last year. In addition, THERAVANCE INC has also vastly surpassed the industry average cash flow growth rate of -9.11%.
- You can view the full Theravance Ratings Report.
- Our dividend calendar.