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."Avon Products Dividend Yield: 8.80% Avon Products (NYSE: AVP) shares currently have a dividend yield of 8.80%. Avon Products, Inc. manufactures and markets beauty and related products worldwide. The average volume for Avon Products has been 11,055,200 shares per day over the past 30 days. Avon Products has a market cap of $1.2 billion and is part of the consumer non-durables industry. Shares are down 69.7% year-to-date as of the close of trading on Monday. 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 Avon Products as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, weak operating cash flow, 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 when compared to that of the S&P 500 and the Personal Products industry. The net income has significantly decreased by 862.6% when compared to the same quarter one year ago, falling from $91.40 million to -$697.00 million.
- Net operating cash flow has significantly decreased to $13.20 million or 90.06% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 71.80%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 852.38% 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.
- AVON PRODUCTS 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AVON PRODUCTS reported poor results of -$0.88 versus -$0.01 in the prior year. This year, the market expects an improvement in earnings ($0.12 versus -$0.88).
- The gross profit margin for AVON PRODUCTS is rather high; currently it is at 63.33%. 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 -41.81% significantly underperformed when compared to the industry average.
- You can view the full Avon Products Ratings Report.
- Net operating cash flow has decreased to $177.35 million or 24.19% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- VER has underperformed the S&P 500 Index, declining 7.19% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- 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 Real Estate Investment Trusts (REITs) industry and the overall market, VEREIT INC's return on equity significantly trails that of both the industry average and the S&P 500.
- VER, with its decline in revenue, underperformed when compared the industry average of 6.1%. Since the same quarter one year prior, revenues fell by 15.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- 37.53% is the gross profit margin for VEREIT INC which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, VER's net profit margin of 1.95% significantly trails the industry average.
- You can view the full VEREIT Ratings Report.
- 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 Independent Power Producers & Energy Traders industry. The net income has significantly decreased by 286.6% when compared to the same quarter one year ago, falling from $1.91 million to -$3.56 million.
- The debt-to-equity ratio is very high at 2.09 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 3.09, which shows the ability to cover short-term cash needs.
- Compared to other companies in the Independent Power Producers & Energy Traders industry and the overall market, TERRAFORM POWER INC's return on equity significantly trails that of both the industry average and the S&P 500.
- TERP'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 71.17%, 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.
- The gross profit margin for TERRAFORM POWER INC is currently very high, coming in at 72.93%. 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 -2.18% is in-line with the industry average.
- You can view the full TerraForm Power Ratings Report.
- Our dividend calendar.