Editor’s Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer
TheStreet Ratings’ stock model projects a stock’s total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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: 5.30%
Potash Corp of Saskatchewan (NYSE:
POT) shares currently have a dividend yield of 5.30%.
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 15.48.
The average volume for Potash Corp of Saskatchewan has been 4,079,800 shares per day over the past 30 days. Potash Corp of Saskatchewan has a market cap of $24.0 billion and is part of the chemicals industry. Shares are down 18.2% year-to-date as of the close of trading on Monday.
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TheStreet Ratings rates
Potash Corp of Saskatchewan as a
hold. The company’s strengths can be seen in multiple areas, such as its increase in net income, expanding profit margins and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.
Highlights from the ratings report include:
The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Chemicals industry average. The net income increased by 8.8% when compared to the same quarter one year prior, going from $340.00 million to $370.00 million.
44.68% is the gross profit margin for POTASH CORP SASK INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 22.22% significantly outperformed against the industry average.
The current debt-to-equity ratio, 0.47, 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 0.68, displays a potential problem in covering short-term cash needs.
POT has underperformed the S&P 500 Index, declining 21.76% 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.
Net operating cash flow has declined marginally to $521.00 million or 3.33% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm’s growth rate is much lower.
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