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."Pepco Holdings Dividend Yield: 4.70% Pepco Holdings (NYSE: POM) shares currently have a dividend yield of 4.70%. Pepco Holdings, Inc., through its subsidiaries, engages in the transmission, distribution, and supply of electricity. The company also distributes and supplies natural gas. The company has a P/E ratio of 26.39. The average volume for Pepco Holdings has been 1,901,600 shares per day over the past 30 days. Pepco Holdings has a market cap of $5.8 billion and is part of the utilities industry. Shares are down 14.7% 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 Pepco Holdings as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and good cash flow from operations. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 2.1%. Since the same quarter one year prior, revenues slightly increased by 2.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- Net operating cash flow has increased to $182.00 million or 34.81% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 23.67%.
- PEPCO HOLDINGS INC 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, PEPCO HOLDINGS INC increased its bottom line by earning $0.96 versus $0.41 in the prior year. This year, the market expects an improvement in earnings ($1.30 versus $0.96).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Electric Utilities industry average. The net income has remained constant at $53.00 million when compared to the same quarter one year ago.
- POM has underperformed the S&P 500 Index, declining 16.31% from its price level of one year ago. Despite the decline in its share price over the last year, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry. We feel, however, that other strengths this company displays compensate for this.
- You can view the full Pepco Holdings Ratings Report.
- EPR's revenue growth has slightly outpaced the industry average of 9.7%. Since the same quarter one year prior, revenues rose by 10.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for EPR PROPERTIES is rather high; currently it is at 60.56%. Regardless of EPR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EPR's net profit margin of 48.06% significantly outperformed against the industry.
- EPR PROPERTIES has improved earnings per share by 15.4% in the most recent quarter compared to the same quarter a year ago. 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, EPR PROPERTIES reported lower earnings of $2.78 versus $3.13 in the prior year. This year, the market expects an improvement in earnings ($2.90 versus $2.78).
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Real Estate Investment Trusts (REITs) industry average, but is greater than that of the S&P 500. The net income increased by 19.6% when compared to the same quarter one year prior, going from $40.76 million to $48.77 million.
- You can view the full EPR Properties Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 21.3% when compared to the same quarter one year prior, going from $146.26 million to $177.39 million.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, MAGELLAN MIDSTREAM PRTNRS LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for MAGELLAN MIDSTREAM PRTNRS LP is rather high; currently it is at 53.66%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 36.38% significantly outperformed against the industry average.
- Net operating cash flow has slightly increased to $223.74 million or 7.93% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -20.76%.
- Despite the weak revenue results, MMP has significantly outperformed against the industry average of 34.5%. Since the same quarter one year prior, revenues slightly dropped by 1.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full Magellan Midstream Partners L.P Ratings Report.
- Our dividend calendar.