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."Covanta Dividend Yield: 5.80% Covanta (NYSE: CVA) shares currently have a dividend yield of 5.80%. Covanta Holding Corporation, through its subsidiaries, provides waste and energy services to municipal entities primarily in the United States and Canada. The company owns and operates infrastructure for the conversion of waste to energy. The company has a P/E ratio of 29.98. The average volume for Covanta has been 1,358,400 shares per day over the past 30 days. Covanta has a market cap of $2.2 billion and is part of the materials & construction industry. Shares are up 9.9% 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 Covanta as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, good cash flow from operations and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, poor profit margins and generally higher debt management risk. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Commercial Services & Supplies industry. The net income increased by 1640.0% when compared to the same quarter one year prior, rising from -$5.00 million to $77.00 million.
- Net operating cash flow has increased to $93.00 million or 22.36% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 2.00%.
- CVA, with its decline in revenue, slightly underperformed the industry average of 1.3%. Since the same quarter one year prior, revenues slightly dropped by 0.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for COVANTA HOLDING CORP is currently lower than what is desirable, coming in at 31.02%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 17.82% is above that of the industry average.
- CVA has underperformed the S&P 500 Index, declining 21.99% from its price level of one year ago. 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 Covanta Ratings Report.
- The revenue growth came in higher than the industry average of 7.9%. Since the same quarter one year prior, revenues rose by 19.9%. 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.
- The gross profit margin for SABRA HEALTH CARE REIT INC is currently very high, coming in at 72.85%. Regardless of SBRA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SBRA's net profit margin of 37.54% significantly outperformed against the industry.
- 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, SABRA HEALTH CARE REIT INC's return on equity is below that of both the industry average and the S&P 500.
- Looking at the price performance of SBRA's shares over the past 12 months, there is not much good news to report: the stock is down 35.18%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than 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.
- You can view the full Sabra Health Care REIT Ratings Report.
- GAMESTOP CORP has improved earnings per share by 6.0% 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. This trend suggests that the performance of the business is improving. During the past fiscal year, GAMESTOP CORP increased its bottom line by earning $3.54 versus $3.02 in the prior year. This year, the market expects an improvement in earnings ($3.76 versus $3.54).
- GME's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.18 is very weak and demonstrates a lack of ability to pay short-term obligations.
- The change in net income from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income has decreased by 0.9% when compared to the same quarter one year ago, dropping from $56.40 million to $55.90 million.
- Net operating cash flow has decreased to $211.10 million or 32.31% 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 GameStop Ratings Report.
- Our dividend calendar.