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." Deswell Industries Dividend Yield: 7.40% Deswell Industries (NASDAQ: DSWL) shares currently have a dividend yield of 7.40%. Deswell Industries, Inc. manufactures and sells injection-molded plastic parts and components, electronic products, assembling, and metallic parts for original equipment manufacturers and contract manufacturers. The average volume for Deswell Industries has been 16,000 shares per day over the past 30 days. Deswell Industries has a market cap of $30.5 million and is part of the consumer non-durables industry. Shares are up 5.6% 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 Deswell Industries as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Electronic Equipment, Instruments & Components industry and the overall market, DESWELL INDUSTRIES INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for DESWELL INDUSTRIES INC is rather low; currently it is at 15.05%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -10.45% is significantly below that of the industry average.
- Net operating cash flow has declined marginally to -$0.22 million or 4.18% when compared to the same quarter last year. Despite a decrease in cash flow DESWELL INDUSTRIES INC is still fairing well by exceeding its industry average cash flow growth rate of -26.20%.
- DSWL has underperformed the S&P 500 Index, declining 5.48% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Electronic Equipment, Instruments & Components industry average, but is greater than that of the S&P 500. The net income increased by 20.3% when compared to the same quarter one year prior, going from -$1.42 million to -$1.13 million.
- You can view the full Deswell Industries Ratings Report.