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."Royal Dutch Shell Dividend Yield: 7.70% Royal Dutch Shell (NYSE: RDS.A) shares currently have a dividend yield of 7.70%. Royal Dutch Shell plc operates as an independent oil and gas company worldwide. It operates through Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas, and natural gas liquids. The company has a P/E ratio of 20.62. The average volume for Royal Dutch Shell has been 4,947,200 shares per day over the past 30 days. Royal Dutch Shell has a market cap of $195.2 billion and is part of the energy industry. Shares are up 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 Royal Dutch Shell as a hold. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. At the same time, however, we also find weaknesses including deteriorating net income, poor profit margins and weak operating cash flow. Highlights from the ratings report include:
- The current debt-to-equity ratio, 0.41, is low and is below the industry average, implying that there has been successful management of debt levels.
- RDS.A, with its decline in revenue, slightly underperformed the industry average of 24.6%. Since the same quarter one year prior, revenues fell by 26.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- ROYAL DUTCH SHELL PLC 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. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ROYAL DUTCH SHELL PLC reported lower earnings of $0.60 versus $4.70 in the prior year. This year, the market expects an improvement in earnings ($4.63 versus $0.60).
- Net operating cash flow has significantly decreased to $661.00 million or 90.69% 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.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 89.1% when compared to the same quarter one year ago, falling from $4,430.00 million to $484.00 million.
- You can view the full Royal Dutch Shell Ratings Report.
- Net operating cash flow has significantly increased by 441.23% to $6,115.00 million when compared to the same quarter last year. In addition, ROYAL BANK OF CANADA has also vastly surpassed the industry average cash flow growth rate of -118.32%.
- The gross profit margin for ROYAL BANK OF CANADA is currently very high, coming in at 78.70%. 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 21.71% trails the industry average.
- ROYAL BANK OF CANADA' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, ROYAL BANK OF CANADA increased its bottom line by earning $6.73 versus $6.01 in the prior year.
- The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and the Commercial Banks industry average. The net income has decreased by 0.3% when compared to the same quarter one year ago, dropping from $2,434.00 million to $2,426.00 million.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, RY has underperformed the S&P 500 Index, declining 9.63% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full Royal Bank of Canada Ratings Report.
- 36.11% is the gross profit margin for CATERPILLAR INC which we consider to be strong. Regardless of CAT'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 2.86% trails the industry average.
- CAT, with its decline in revenue, underperformed when compared the industry average of 14.0%. Since the same quarter one year prior, revenues fell by 25.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The debt-to-equity ratio is very high at 2.45 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.
- 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 78.2% when compared to the same quarter one year ago, falling from $1,245.00 million to $271.00 million.
- Net operating cash flow has significantly decreased to $489.00 million or 61.49% 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 Caterpillar Ratings Report.
- Our dividend calendar.