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."ConocoPhillips Dividend Yield: 6.00% ConocoPhillips (NYSE: COP) shares currently have a dividend yield of 6.00%. ConocoPhillips explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide. The company has a P/E ratio of 35.85. The average volume for ConocoPhillips has been 7,431,300 shares per day over the past 30 days. ConocoPhillips has a market cap of $61.1 billion and is part of the energy industry. Shares are down 31.9% year-to-date as of the close of trading on Thursday. 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 ConocoPhillips as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income. Highlights from the ratings report include:
- The current debt-to-equity ratio, 0.51, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.03, which illustrates the ability to avoid short-term cash problems.
- 36.86% is the gross profit margin for CONOCOPHILLIPS which we consider to be strong. Regardless of COP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -2.15% trails the industry average.
- COP, with its decline in revenue, slightly underperformed the industry average of 34.4%. Since the same quarter one year prior, revenues fell by 40.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- CONOCOPHILLIPS 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. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, CONOCOPHILLIPS reported lower earnings of $4.61 versus $6.43 in the prior year. For the next year, the market is expecting a contraction of 99.5% in earnings ($0.02 versus $4.61).
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 108.6% when compared to the same quarter one year ago, falling from $2,081.00 million to -$179.00 million.
- You can view the full ConocoPhillips 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 12.5%. 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.
- The gross profit margin for HCP INC is rather high; currently it is at 54.34%. 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, the net profit margin of 26.61% trails the industry average.
- Net operating cash flow has remained constant at $363.92 million with no significant change when compared to the same quarter last year. Despite stable cash flow, HCP INC's cash flow growth rate is still lower than the industry average growth rate of 12.34%.
- 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.
- 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, 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 HCP Ratings Report.
- 45.87% is the gross profit margin for POTASH CORP SASK INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 24.09% significantly outperformed against the industry average.
- Net operating cash flow has slightly increased to $836.00 million or 6.09% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -4.11%.
- The current debt-to-equity ratio, 0.46, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.75 is somewhat weak and could be cause for future problems.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, POT has underperformed the S&P 500 Index, declining 24.45% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- POTASH CORP SASK INC's earnings per share declined by 10.7% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, POTASH CORP SASK INC reported lower earnings of $1.83 versus $2.03 in the prior year. For the next year, the market is expecting a contraction of 0.6% in earnings ($1.82 versus $1.83).
- You can view the full Potash Corp of Saskatchewan Ratings Report.
- Our dividend calendar.