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 "Hold." STMicroelectronics Dividend Yield: 4.80% STMicroelectronics (NYSE: STM) shares currently have a dividend yield of 4.80%. STMicroelectronics N.V. designs, develops, manufactures, and markets various semiconductor integrated circuits and discrete devices worldwide. The company has a P/E ratio of 59.29. The average volume for STMicroelectronics has been 1,183,800 shares per day over the past 30 days. STMicroelectronics has a market cap of $7.3 billion and is part of the electronics industry. Shares are up 12.4% year-to-date as of the close of trading on Tuesday. 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 STMicroelectronics as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year. Highlights from the ratings report include:
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Semiconductors & Semiconductor Equipment industry average. The net income increased by 8.3% when compared to the same quarter one year prior, going from -$24.00 million to -$22.00 million.
- The current debt-to-equity ratio, 0.38, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, STM has a quick ratio of 1.79, which demonstrates the ability of the company to cover short-term liquidity needs.
- STMICROELECTRONICS NV reported flat earnings per share in the most recent quarter. 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, STMICROELECTRONICS NV turned its bottom line around by earning $0.14 versus -$0.56 in the prior year. This year, the market expects an improvement in earnings ($0.27 versus $0.14).
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, STMICROELECTRONICS NV's return on equity significantly trails that of both the industry average and the S&P 500.
- STM has underperformed the S&P 500 Index, declining 15.28% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full STMicroelectronics Ratings Report.
- HCP's revenue growth has slightly outpaced the industry average of 8.4%. Since the same quarter one year prior, revenues rose by 14.7%. 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 HCP INC is rather high; currently it is at 56.55%. 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 -38.53% significantly underperformed when compared to the industry average.
- 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 192.9% when compared to the same quarter one year ago, falling from $259.11 million to -$240.61 million.
- 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 Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, HCP INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full HCP Ratings Report.
- BMO's revenue growth has slightly outpaced the industry average of 0.1%. Since the same quarter one year prior, revenues slightly increased by 2.6%. 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.
- Net operating cash flow has significantly increased by 53100.00% to $1,064.00 million when compared to the same quarter last year. In addition, BANK OF MONTREAL has also vastly surpassed the industry average cash flow growth rate of -37.14%.
- The gross profit margin for BANK OF MONTREAL is currently very high, coming in at 84.94%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, BMO's net profit margin of 17.61% significantly trails the industry average.
- 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 Commercial Banks industry and the overall market on the basis of return on equity, BANK OF MONTREAL has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, BMO has underperformed the S&P 500 Index, declining 14.36% 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.
- You can view the full Bank of Montreal Ratings Report.
- Our dividend calendar.