"Investors considering high-yield stocks should consider financial strength; in our quantitative model, Quadrix, we assess profit margins, interest coverage, and debt levels," says Richard Moroney.
In Dow Theory Forecasts, a newsletter that has been published for over 5 decades -- he looks at two stocks that score high in this area: drug manufacturer, AstraZeneca (NYSE: AZN) and defense industry player, General Dynamics (NYSE: GD). Here, the advisor reviews the two companies.
"AstraZeneca's operating cash flow jumped 24% in the first half of 2009, allowing the company to retire $3 billion in debt since the end of 2008.
"That extra cash also eased the way for AstraZeneca's board to boost the September dividend 7% to $0.59 per share. AstraZeneca pays two dividends each year, with a larger payout in March. June-quarter per-share profits rose 31% to $1.64, cruising past the consensus estimate of $1.38.
"In July, U.S. regulators approved Onglyza, a potential blockbuster diabetes drug. Analysts predict that Onglyza's peak annual sales could range from $300 million to more than $1 billion.
"Strong operating momentum prompted AstraZeneca to raise its full-year profit target. The company now anticipates per-share earnings of $5.70 to $6.00, $0.55 above earlier guidance and implying at least 18% growth. AstraZeneca, yielding 4.4%, is a Buy and a Long-Term Buy.
"General Dynamics yields 2.7%, yet the payout represents less than one-fourth of annual earnings. The dividend has grown at an annualized rate of 17% over the last five years.
"The defense contractor appears to have both the will and the financial strength to continue boosting the payout.
"In the first half of 2009, total revenue rose 14% to $16.36 billion, paced by almost 20% sales growth in combat (29% of first-half sales) and marine systems (20%).
"In the June quarter, the backlog grew 22% to $67.6 billion, of which $47.7 billion is funded. The company's outlook is improving, though 2009 profits will probably lag results from last year.
"While other large contractors face possible cuts in many of their largest programs, the budget as proposed in April called for General Dynamics to build three new destroyers for roughly $2.5 billion apiece.
"Past defense allocations had only guaranteed the company one boat. General Dynamics, our top selection in the defense group, is a Buy and a Long-Term Buy."
Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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