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." Entergy Dividend Yield: 4.30% Entergy (NYSE: ETR) shares currently have a dividend yield of 4.30%. Entergy Corporation, together with its subsidiaries, engages in the electric power production and retail electric distribution operations in the United States. It operates in two segments, Utility and Entergy Wholesale Commodities. The company has a P/E ratio of 16.67. The average volume for Entergy has been 1,325,300 shares per day over the past 30 days. Entergy has a market cap of $13.9 billion and is part of the utilities industry. Shares are down 11.8% year-to-date as of the close of trading on Friday. 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 Entergy as a buy. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year and attractive valuation levels. 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 a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. 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.
- ENTERGY CORP's earnings per share declined by 26.3% 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, ENTERGY CORP increased its bottom line by earning $5.22 versus $3.98 in the prior year. This year, the market expects an improvement in earnings ($5.52 versus $5.22).
- ETR, with its decline in revenue, underperformed when compared the industry average of 3.1%. Since the same quarter one year prior, revenues slightly dropped by 9.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for ENTERGY CORP is currently lower than what is desirable, coming in at 32.61%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 10.37% is above that of the industry average.
- You can view the full Entergy Ratings Report.
- HCP's revenue growth has slightly outpaced the industry average of 9.8%. Since the same quarter one year prior, revenues rose by 11.5%. 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 $365.60 million or 19.74% when compared to the same quarter last year. In addition, HCP INC has also vastly surpassed the industry average cash flow growth rate of -62.88%.
- The gross profit margin for HCP INC is rather high; currently it is at 56.56%. Regardless of HCP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HCP's net profit margin of 32.03% compares favorably to the industry average.
- HCP INC's earnings per share declined by 15.7% 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, HCP INC reported lower earnings of $1.95 versus $1.97 in the prior year. This year, the market expects an improvement in earnings ($1.99 versus $1.95).
- In its most recent trading session, HCP 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, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full HCP Ratings Report.
- TE's revenue growth has slightly outpaced the industry average of 5.0%. Since the same quarter one year prior, revenues slightly increased by 1.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- TECO ENERGY INC has improved earnings per share by 22.7% 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, TECO ENERGY INC increased its bottom line by earning $0.92 versus $0.88 in the prior year. This year, the market expects an improvement in earnings ($1.10 versus $0.92).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Multi-Utilities industry. The net income increased by 15.8% when compared to the same quarter one year prior, going from $50.10 million to $58.00 million.
- 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 Multi-Utilities industry and the overall market on the basis of return on equity, TECO ENERGY INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- You can view the full TECO Energy Ratings Report.
- Our dividend calendar.