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."Potash Corp of Saskatchewan Dividend Yield: 9.40% Potash Corp of Saskatchewan (NYSE: POT) shares currently have a dividend yield of 9.40%. Potash Corporation of Saskatchewan Inc., together with its subsidiaries, produces and sells fertilizers and related industrial and feed products worldwide. The company operates in three segments: Potash, Nitrogen, and Phosphate. The company has a P/E ratio of 9.21. The average volume for Potash Corp of Saskatchewan has been 7,390,600 shares per day over the past 30 days. Potash Corp of Saskatchewan has a market cap of $13.5 billion and is part of the chemicals industry. Shares are down 5% 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 Potash Corp of Saskatchewan as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- The current debt-to-equity ratio, 0.48, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that POT's debt-to-equity ratio is low, the quick ratio, which is currently 0.60, displays a potential problem in covering short-term cash needs.
- 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 Chemicals industry and the overall market on the basis of return on equity, POTASH CORP SASK INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- 39.11% is the gross profit margin for POTASH CORP SASK INC which we consider to be strong. Regardless of POT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, POT's net profit margin of 18.44% compares favorably to the industry average.
- POTASH CORP SASK INC's earnings per share declined by 10.5% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, POTASH CORP SASK INC reported lower earnings of $1.83 versus $2.03 in the prior year. For the next year, the market is expecting a contraction of 13.1% in earnings ($1.59 versus $1.83).
- Net operating cash flow has decreased to $358.00 million or 37.63% 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.
- You can view the full Potash Corp of Saskatchewan Ratings Report.
- Net operating cash flow has significantly increased by 150.84% to $244.35 million when compared to the same quarter last year. Despite an increase in cash flow of 150.84%, PROSPECT CAPITAL CORP is still growing at a significantly lower rate than the industry average of 276.16%.
- The gross profit margin for PROSPECT CAPITAL CORP is rather high; currently it is at 66.52%. Regardless of PSEC'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 13.89% trails the industry average.
- 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 Capital Markets industry. The net income has significantly decreased by 66.9% when compared to the same quarter one year ago, falling from $84.11 million to $27.82 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Capital Markets industry and the overall market, PROSPECT CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Prospect Capital Ratings Report.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 21.7%. 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.
- CATERPILLAR 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, CATERPILLAR INC increased its bottom line by earning $5.87 versus $5.75 in the prior year. For the next year, the market is expecting a contraction of 21.6% in earnings ($4.60 versus $5.87).
- 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 Machinery industry. The net income has significantly decreased by 63.8% when compared to the same quarter one year ago, falling from $1,017.00 million to $368.00 million.
- The debt-to-equity ratio is very high at 2.36 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, CAT maintains a poor quick ratio of 0.85, which illustrates the inability to avoid short-term cash problems.
- You can view the full Caterpillar Ratings Report.
- Our dividend calendar.