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."Northwest Dividend Yield: 4.40% Northwest (NASDAQ: NWBI) shares currently have a dividend yield of 4.40%. Northwest Bancshares, Inc. operates as a bank holding company for Northwest Savings Bank that offers various personal and business banking solutions in the United States. The company operates through two segments, Community Banking and Consumer Finance. The company has a P/E ratio of 17.78. The average volume for Northwest has been 712,600 shares per day over the past 30 days. Northwest has a market cap of $1.2 billion and is part of the banking industry. Shares are up 1.3% 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 Northwest as a buy. The company's strengths can be seen in multiple areas, such as its increase in net income, reasonable valuation levels, expanding profit margins, good cash flow from operations and solid stock price performance. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Thrifts & Mortgage Finance industry. The net income increased by 20.8% when compared to the same quarter one year prior, going from $12.67 million to $15.31 million.
- The gross profit margin for NORTHWEST BANCSHARES INC is currently very high, coming in at 83.95%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 16.54% trails the industry average.
- Net operating cash flow has slightly increased to $24.60 million or 7.02% when compared to the same quarter last year. Despite an increase in cash flow of 7.02%, NORTHWEST BANCSHARES INC is still growing at a significantly lower rate than the industry average of 124.58%.
- After a year of stock price fluctuations, the net result is that NWBI's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. 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.
- You can view the full Northwest Ratings Report.
- Net operating cash flow has increased to $1,439.00 million or 15.48% when compared to the same quarter last year. Despite an increase in cash flow, DUKE ENERGY CORP's average is still marginally south of the industry average growth rate of 22.30%.
- 36.82% is the gross profit margin for DUKE ENERGY CORP which we consider to be strong. Regardless of DUK'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 9.71% trails the industry average.
- DUKE ENERGY CORP's earnings per share declined by 14.7% in the most recent quarter compared to 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, DUKE ENERGY CORP reported lower earnings of $3.46 versus $3.63 in the prior year. This year, the market expects an improvement in earnings ($4.65 versus $3.46).
- DUK, with its decline in revenue, slightly underperformed the industry average of 0.8%. Since the same quarter one year prior, revenues slightly dropped by 2.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Even though the current debt-to-equity ratio is 1.04, it is still below the industry average, suggesting that this level of debt is acceptable within the Electric Utilities industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.29 is very low and demonstrates very weak liquidity.
- You can view the full Duke Energy Corporation Ratings Report.
- POM's revenue growth has slightly outpaced the industry average of 0.8%. 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 22.30%.
- 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 ($1.20 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 12.79% 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.
- Our dividend calendar.