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." RR Donnelley & Sons Dividend Yield: 5.60% RR Donnelley & Sons (NASDAQ: RRD) shares currently have a dividend yield of 5.60%. R.R. Donnelley & Sons Company provides integrated communications solutions to private and public sector clients in the United States and internationally. The company operates through Publishing and Retail Services, Variable Print, Strategic Services, and International segments. The company has a P/E ratio of 31.53. The average volume for RR Donnelley & Sons has been 1,746,100 shares per day over the past 30 days. RR Donnelley & Sons has a market cap of $3.7 billion and is part of the diversified services industry. Shares are up 10.7% year-to-date as of the close of trading on Wednesday. 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 RR Donnelley & Sons as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 1.0%. Since the same quarter one year prior, revenues rose by 11.4%. 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 $468.80 million or 20.91% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -11.57%.
- 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.
- DONNELLEY (R R) & SONS CO 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 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, DONNELLEY (R R) & SONS CO reported lower earnings of $0.58 versus $1.15 in the prior year. This year, the market expects an improvement in earnings ($1.56 versus $0.58).
- The debt-to-equity ratio is very high at 6.12 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, RRD's quick ratio is somewhat strong at 1.08, demonstrating the ability to handle short-term liquidity needs.
- You can view the full RR Donnelley & Sons Ratings Report.
- HT's revenue growth has slightly outpaced the industry average of 9.8%. Since the same quarter one year prior, revenues rose by 19.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 34.3% when compared to the same quarter one year prior, rising from -$6.01 million to -$3.95 million.
- 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. 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.
- HERSHA HOSPITALITY TRUST reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, HERSHA HOSPITALITY TRUST increased its bottom line by earning $0.27 versus $0.02 in the prior year. For the next year, the market is expecting a contraction of 48.1% in earnings ($0.14 versus $0.27).
- You can view the full Hersha Hospitality Ratings Report.
- ARCC's revenue growth has slightly outpaced the industry average of 4.4%. Since the same quarter one year prior, revenues slightly increased by 5.6%. 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.
- The gross profit margin for ARES CAPITAL CORP is currently very high, coming in at 72.57%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 39.71% significantly outperformed against the industry average.
- Net operating cash flow has significantly increased by 977.74% to $575.81 million when compared to the same quarter last year. In addition, ARES CAPITAL CORP has also vastly surpassed the industry average cash flow growth rate of 141.38%.
- 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 Capital Markets industry and the overall market on the basis of return on equity, ARES CAPITAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- ARES CAPITAL CORP's earnings per share declined by 17.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, ARES CAPITAL CORP increased its bottom line by earning $1.93 versus $1.81 in the prior year. For the next year, the market is expecting a contraction of 16.1% in earnings ($1.62 versus $1.93).
- You can view the full Ares Capital Corporation Ratings Report.
- Our dividend calendar.