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."TimkenSteel Dividend Yield: 4.10% TimkenSteel (NYSE: TMST) shares currently have a dividend yield of 4.10%. TimkenSteel Corporation manufactures and sells alloy steel, and carbon and micro-alloy steel products. It operates in two segments, Industrial & Mobile, and Energy & Distribution. The company has a P/E ratio of 25.48. The average volume for TimkenSteel has been 697,500 shares per day over the past 30 days. TimkenSteel has a market cap of $612.6 million and is part of the metals & mining industry. Shares are down 62.9% 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 TimkenSteel as a sell. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself, feeble growth in its earnings per share, deteriorating net income and poor profit margins. Highlights from the ratings report include:
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 66.80%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 187.09% 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.
- TIMKENSTEEL CORP 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. For the next year, the market is expecting a contraction of 180.2% in earnings (-$1.82 versus $2.27).
- 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 184.7% when compared to the same quarter one year ago, falling from $28.70 million to -$24.30 million.
- The gross profit margin for TIMKENSTEEL CORP is currently extremely low, coming in at 4.67%. It has decreased significantly from the same period last year.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 46.8%. Since the same quarter one year prior, revenues fell by 37.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full TimkenSteel Ratings Report.
- ABY's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 36.37%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
- The debt-to-equity ratio is very high at 2.46 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, ABY has managed to keep a strong quick ratio of 1.72, which demonstrates the ability to cover short-term cash needs.
- Compared to other companies in the Independent Power Producers & Energy Traders industry and the overall market on the basis of return on equity, ABENGOA YIELD PLC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for ABENGOA YIELD PLC is currently very high, coming in at 73.54%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.65% trails the industry average.
- Net operating cash flow has significantly increased by 160.74% to $41.93 million when compared to the same quarter last year. In addition, ABENGOA YIELD PLC has also vastly surpassed the industry average cash flow growth rate of 28.52%.
- You can view the full Abengoa Yield Ratings Report.
- The debt-to-equity ratio is very high at 55.23 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, AVP has a quick ratio of 0.60, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- 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 Personal Products industry and the overall market, AVON PRODUCTS's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $88.20 million or 16.39% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- AVP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 61.65%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
- The gross profit margin for AVON PRODUCTS is rather high; currently it is at 63.29%. Regardless of AVP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AVP's net profit margin of 1.57% is significantly lower than the industry average.
- You can view the full Avon Products Ratings Report.
- Our dividend calendar.