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."BP Dividend Yield: 6.70% BP (NYSE: BP) shares currently have a dividend yield of 6.70%. BP p.l.c. operates as an integrated oil and gas company worldwide. It operates through three segments: Upstream, Downstream, and Rosneft. The average volume for BP has been 10,353,300 shares per day over the past 30 days. BP has a market cap of $111.9 billion and is part of the energy industry. Shares are up 15.2% year-to-date as of the close of trading on Friday. 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 BP as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and disappointing return on equity. Highlights from the ratings report include:
- Net operating cash flow has remained constant at $1,872.00 million with no significant change when compared to the same quarter last year. Even though BP PLC's cash flow growth was minimal, the firm managed to surpass its industry's average growth rate of -49.95%.
- BP, with its decline in revenue, slightly underperformed the industry average of 24.1%. Since the same quarter one year prior, revenues fell by 30.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for BP PLC is rather low; currently it is at 16.02%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -1.51% trails that of 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 122.4% when compared to the same quarter one year ago, falling from $2,602.00 million to -$583.00 million.
- You can view the full BP Ratings Report.
- Despite the weak revenue results, IVZ has outperformed against the industry average of 23.7%. Since the same quarter one year prior, revenues fell by 11.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- INVESCO LTD's earnings per share declined by 36.7% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. However, the consensus estimates suggest that there will be an upward trend in the coming year. During the past fiscal year, INVESCO LTD reported lower earnings of $2.26 versus $2.27 in the prior year. This year, the market expects an improvement in earnings ($2.28 versus $2.26).
- The change in net income from the same quarter one year ago has exceeded that of the Capital Markets industry average, but is less than that of the S&P 500. The net income has significantly decreased by 38.0% when compared to the same quarter one year ago, falling from $259.60 million to $161.00 million.
- Net operating cash flow has decreased to -$68.80 million or 22.20% when compared to the same quarter last year. Despite a decrease in cash flow of 22.20%, INVESCO LTD is still significantly exceeding the industry average of -199.13%.
- The gross profit margin for INVESCO LTD is currently lower than what is desirable, coming in at 27.67%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 14.01% trails that of the industry average.
- You can view the full Invesco Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 9.8% when compared to the same quarter one year prior, going from $284.00 million to $312.00 million.
- Net operating cash flow has significantly increased by 71.30% to $985.00 million when compared to the same quarter last year. In addition, ENERGY TRANSFER EQUITY LP has also vastly surpassed the industry average cash flow growth rate of -49.84%.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 24.6%. Since the same quarter one year prior, revenues fell by 20.3%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for ENERGY TRANSFER EQUITY LP is rather low; currently it is at 18.47%. Regardless of ETE's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, ETE's net profit margin of 4.06% compares favorably to the industry average.
- ETE's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 55.20%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- You can view the full Energy Transfer Equity Ratings Report.
- Our dividend calendar.