3 Sell-Rated Dividend Stocks: ALDW, DCIX, USAC
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 "Sell." Alon USA Partners (NYSE: ALDW) shares currently have a dividend yield of 14.30%. Alon USA Partners, LP refines and markets petroleum products primarily in the South Central and Southwestern regions of the United States. The company owns and operates a crude oil refinery in Big Spring, Texas with crude oil throughput capacity of 70,000 barrels per day. The company has a P/E ratio of 14.15. The average volume for Alon USA Partners has been 143,000 shares per day over the past 30 days. Alon USA Partners has a market cap of $1.2 billion and is part of the energy industry. Shares are up 10.8% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Alon USA Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- 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 54.8% when compared to the same quarter one year ago, falling from $93.53 million to $42.24 million.
- Currently the debt-to-equity ratio of 1.95 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, ALDW maintains a poor quick ratio of 0.99, which illustrates the inability to avoid short-term cash problems.
- The gross profit margin for ALON USA PARTNERS LP is currently extremely low, coming in at 7.99%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.93% trails that of the industry average.
- Net operating cash flow has significantly decreased to $45.27 million or 72.83% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The share price of ALON USA PARTNERS LP has not done very well: it is down 20.69% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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 Alon USA Partners Ratings Report.
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