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." Harsco Dividend Yield: 5.10% Harsco (NYSE: HSC) shares currently have a dividend yield of 5.10%. Harsco Corporation provides industrial services and engineered products worldwide. The company operates through three segments: Harsco Metals and Minerals, Harsco Rail, and Harsco Industrial. The average volume for Harsco has been 618,900 shares per day over the past 30 days. Harsco has a market cap of $1.3 billion and is part of the metals & mining industry. Shares are down 14.2% year-to-date as of the close of trading on Monday. 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 Harsco as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk, poor profit margins 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 Machinery industry. The net income has significantly decreased by 80.0% when compared to the same quarter one year ago, falling from -$25.33 million to -$45.59 million.
- The debt-to-equity ratio is very high at 2.78 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, HSC maintains a poor quick ratio of 0.74, which illustrates the inability to avoid short-term cash problems.
- The gross profit margin for HARSCO CORP is currently lower than what is desirable, coming in at 25.45%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -9.26% is significantly below that of 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 32.81%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 80.64% 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.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Machinery industry and the overall market, HARSCO CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Harsco Ratings Report.