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."Pepco Holdings Dividend Yield: 4.10% Pepco Holdings (NYSE: POM) shares currently have a dividend yield of 4.10%. Pepco Holdings, Inc., through its subsidiaries, engages in the transmission, distribution, and supply of electricity. The company also distributes and supplies natural gas. The company has a P/E ratio of 28.45. The average volume for Pepco Holdings has been 1,629,900 shares per day over the past 30 days. Pepco Holdings has a market cap of $6.6 billion and is part of the utilities industry. Shares are up 0.7% 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 Pepco Holdings as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share and increase in net income. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated. Highlights from the ratings report include:
- POM's revenue growth has slightly outpaced the industry average of 0.6%. Since the same quarter one year prior, revenues slightly increased by 3.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- PEPCO HOLDINGS INC has improved earnings per share by 16.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. 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 ($1.10 versus $0.96).
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Electric Utilities industry average. The net income increased by 15.2% when compared to the same quarter one year prior, going from $79.00 million to $91.00 million.
- After a year of stock price fluctuations, the net result is that POM'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. 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.
- The debt-to-equity ratio of 1.43 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, POM has a quick ratio of 0.53, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full Pepco Holdings Ratings Report.
- PACW's revenue growth has slightly outpaced the industry average of 1.4%. Since the same quarter one year prior, revenues slightly increased by 2.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- PACWEST BANCORP has improved earnings per share by 13.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, PACWEST BANCORP increased its bottom line by earning $1.97 versus $1.08 in the prior year. This year, the market expects an improvement in earnings ($2.88 versus $1.97).
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Commercial Banks industry average. The net income increased by 11.8% when compared to the same quarter one year prior, going from $62.27 million to $69.62 million.
- Net operating cash flow has increased to $124.28 million or 28.59% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -12.38%.
- The gross profit margin for PACWEST BANCORP is currently very high, coming in at 89.30%. Regardless of PACW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PACW's net profit margin of 31.15% compares favorably to the industry average.
- You can view the full PacWest Bancorp Ratings Report.
- The revenue growth greatly exceeded the industry average of 2.3%. Since the same quarter one year prior, revenues rose by 44.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- CALM's debt-to-equity ratio is very low at 0.03 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, CALM has a quick ratio of 2.36, which demonstrates the ability of the company to cover short-term liquidity needs.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Food Products industry and the overall market, CAL-MAINE FOODS INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- 40.78% is the gross profit margin for CAL-MAINE FOODS INC which we consider to be strong. It has increased significantly from the same period last year. Along with this, the net profit margin of 20.00% is above that of the industry average.
- You can view the full Cal-Maine Foods Ratings Report.
- Our dividend calendar.