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 "Hold."Coach Dividend Yield: 4.20% Coach (NYSE: COH) shares currently have a dividend yield of 4.20%. Coach, Inc. provides luxury accessories and lifestyle collections in the United States. The company has a P/E ratio of 23.15. The average volume for Coach has been 4,639,800 shares per day over the past 30 days. Coach has a market cap of $8.9 billion and is part of the consumer non-durables industry. Shares are up 0.1% 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 Coach as a hold. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, weak operating cash flow and disappointing return on equity. Highlights from the ratings report include:
- Despite currently having a low debt-to-equity ratio of 0.36, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that COH's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.03 is high and demonstrates strong liquidity.
- The gross profit margin for COACH INC is currently very high, coming in at 72.97%. Regardless of COH'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 9.35% trails the industry average.
- Net operating cash flow has significantly decreased to $8.00 million or 94.24% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Textiles, Apparel & Luxury Goods industry average. The net income has decreased by 19.1% when compared to the same quarter one year ago, dropping from $119.10 million to $96.40 million.
- You can view the full Coach Ratings Report.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to the other companies in the Independent Power Producers & Energy Traders industry and the overall market, AES CORP's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- Net operating cash flow has increased to $908.00 million or 19.00% when compared to the same quarter last year. Despite an increase in cash flow, AES CORP's average is still marginally south of the industry average growth rate of 27.27%.
- The debt-to-equity ratio is very high at 5.80 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, AES maintains a poor quick ratio of 0.72, which illustrates the inability to avoid short-term cash problems.
- 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 63.1% when compared to the same quarter one year ago, falling from $488.00 million to $180.00 million.
- You can view the full AES Corporation Ratings Report.
- NRG ENERGY 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. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, NRG ENERGY INC turned its bottom line around by earning $0.21 versus -$1.22 in the prior year. This year, the market expects an improvement in earnings ($0.30 versus $0.21).
- Net operating cash flow has increased to $934.00 million or 25.53% when compared to the same quarter last year. Despite an increase in cash flow, NRG ENERGY INC's average is still marginally south of the industry average growth rate of 27.04%.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.3%. Since the same quarter one year prior, revenues slightly dropped by 3.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 60.7% when compared to the same quarter one year ago, falling from $168.00 million to $66.00 million.
- The gross profit margin for NRG ENERGY INC is rather low; currently it is at 17.24%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.48% trails that of the industry average.
- You can view the full NRG Energy Ratings Report.
- Our dividend calendar.