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."Transocean Dividend Yield: 4.60% Transocean (NYSE: RIG) shares currently have a dividend yield of 4.60%. Transocean Ltd., together with its subsidiaries, provides offshore contract drilling services for oil and gas wells worldwide. The company primarily offers deepwater and harsh environment drilling services. The company has a P/E ratio of 6.66. The average volume for Transocean has been 14,862,300 shares per day over the past 30 days. Transocean has a market cap of $4.7 billion and is part of the energy industry. Shares are down 31.8% 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 Transocean as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share. Highlights from the ratings report include:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Energy Equipment & Services industry. The net income has significantly decreased by 41.7% when compared to the same quarter one year ago, falling from $587.00 million to $342.00 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Energy Equipment & Services industry and the overall market, TRANSOCEAN LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 60.60%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 42.94% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- TRANSOCEAN LTD's earnings per share declined by 42.9% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, TRANSOCEAN LTD swung to a loss, reporting -$5.25 versus $3.85 in the prior year. This year, the market expects an improvement in earnings ($3.38 versus -$5.25).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 22.5%. Since the same quarter one year prior, revenues fell by 19.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full Transocean Ratings Report.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 61.78%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 400.00% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- 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 Metals & Mining industry. The net income has significantly decreased by 310.0% when compared to the same quarter one year ago, falling from -$4.00 million to -$16.40 million.
- The gross profit margin for ALLEGHENY TECHNOLOGIES INC is currently extremely low, coming in at 12.22%. Regardless of ATI's low profit margin, it has managed to increase from the same period last year.
- ALLEGHENY TECHNOLOGIES INC 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. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, ALLEGHENY TECHNOLOGIES INC continued to lose money by earning -$0.02 versus -$0.93 in the prior year. For the next year, the market is expecting a contraction of 800.0% in earnings (-$0.18 versus -$0.02).
- 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 Metals & Mining industry and the overall market on the basis of return on equity, ALLEGHENY TECHNOLOGIES INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Allegheny Technologies Ratings Report.
- After a year of stock price fluctuations, the net result is that NYRT'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, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, NEW YORK REIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly increased by 178.15% to $1.89 million when compared to the same quarter last year. In addition, NEW YORK REIT INC has also vastly surpassed the industry average cash flow growth rate of 16.13%.
- NEW YORK REIT INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 87.1% when compared to the same quarter one year prior, rising from -$67.24 million to -$8.66 million.
- You can view the full New York REIT Ratings Report.
- Our dividend calendar.