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."Western Digital Dividend Yield: 4.60% Western Digital (NASDAQ: WDC) shares currently have a dividend yield of 4.60%. Western Digital Corporation, together with its subsidiaries, engages in the development, manufacture, sale, and provision of data storage solutions that enable consumers, businesses, governments, and other organizations to create, manage, experience, and preserve digital content worldwide. The company has a P/E ratio of 9.03. The average volume for Western Digital has been 4,468,400 shares per day over the past 30 days. Western Digital has a market cap of $10.2 billion and is part of the computer hardware industry. Shares are down 27.5% 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 Western Digital 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, attractive valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income. Highlights from the ratings report include:
- Although WDC's debt-to-equity ratio of 0.26 is very low, it is currently higher than that of the industry average. To add to this, WDC has a quick ratio of 2.31, which demonstrates the ability of the company to cover short-term liquidity needs.
- WDC, with its decline in revenue, underperformed when compared the industry average of 2.6%. Since the same quarter one year prior, revenues fell by 14.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- WESTERN DIGITAL CORP's earnings per share declined by 41.8% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, WESTERN DIGITAL CORP reported lower earnings of $6.17 versus $6.69 in the prior year. For the next year, the market is expecting a contraction of 5.5% in earnings ($5.83 versus $6.17).
- 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 Computers & Peripherals industry. The net income has significantly decreased by 42.7% when compared to the same quarter one year ago, falling from $438.00 million to $251.00 million.
- You can view the full Western Digital Ratings Report.
- PSEC's revenue growth has slightly outpaced the industry average of 4.2%. Since the same quarter one year prior, revenues slightly increased by 5.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has significantly increased by 234.83% to $169.17 million when compared to the same quarter last year. In addition, PROSPECT CAPITAL CORP has also vastly surpassed the industry average cash flow growth rate of 88.31%.
- The gross profit margin for PROSPECT CAPITAL CORP is rather high; currently it is at 68.41%. 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 -45.47% is in-line with the industry average.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. 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.
- The share price of PROSPECT CAPITAL CORP has not done very well: it is down 21.02% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full Prospect Capital Ratings Report.
- PKY, with its decline in revenue, underperformed when compared the industry average of 7.3%. Since the same quarter one year prior, revenues fell by 10.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for PARKWAY PROPERTIES INC is rather low; currently it is at 20.71%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, PKY's net profit margin of 7.60% is significantly lower than 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 79.5% when compared to the same quarter one year ago, falling from $42.43 million to $8.68 million.
- You can view the full Parkway Properties Ratings Report.
- Our dividend calendar.