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."CenturyLink Dividend Yield: 5.90% CenturyLink (NYSE: CTL) shares currently have a dividend yield of 5.90%. CenturyLink, Inc. provides various communications services to residential, business, governmental, and wholesale customers in the United States. It operates through two segments, Business and Consumer. The company has a P/E ratio of 26.70. The average volume for CenturyLink has been 4,727,900 shares per day over the past 30 days. CenturyLink has a market cap of $20.5 billion and is part of the telecommunications industry. Shares are down 8.3% year-to-date as of the close of trading on Thursday. 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 CenturyLink as a buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- CENTURYLINK INC's earnings per share declined by 19.5% in the most recent quarter compared to 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, CENTURYLINK INC turned its bottom line around by earning $1.35 versus -$0.43 in the prior year. This year, the market expects an improvement in earnings ($2.56 versus $1.35).
- Net operating cash flow has slightly increased to $1,251.00 million or 8.68% when compared to the same quarter last year. Despite an increase in cash flow, CENTURYLINK INC's average is still marginally south of the industry average growth rate of 10.25%.
- The gross profit margin for CENTURYLINK INC is rather high; currently it is at 56.38%. Regardless of CTL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 4.23% trails the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 5.4%. Since the same quarter one year prior, revenues slightly dropped by 2.3%. The declining revenue appears to have seeped down to the company's 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.
- You can view the full CenturyLink Ratings Report.
- 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.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 472.3% when compared to the same quarter one year prior, rising from -$9.27 million to $34.52 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.4%. Since the same quarter one year prior, revenues slightly increased by 5.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- MID-AMERICA APT CMNTYS INC reported significant earnings per share improvement 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 two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, MID-AMERICA APT CMNTYS INC increased its bottom line by earning $1.88 versus $0.99 in the prior year. For the next year, the market is expecting a contraction of 3.2% in earnings ($1.82 versus $1.88).
- You can view the full Mid-America Apartment Communities Ratings Report.
- HCN's revenue growth has slightly outpaced the industry average of 9.4%. Since the same quarter one year prior, revenues slightly increased by 9.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- HEALTH CARE REIT INC reported significant earnings per share improvement 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 two years. We feel that this trend should continue. During the past fiscal year, HEALTH CARE REIT INC increased its bottom line by earning $1.40 versus $0.09 in the prior year. This year, the market expects an improvement in earnings ($1.73 versus $1.40).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 632.0% when compared to the same quarter one year prior, rising from $28.00 million to $204.99 million.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. 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 return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, HEALTH CARE REIT INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Health Care REIT Ratings Report.
- Our dividend calendar.