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 and 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." Chesapeake Midstream Partners L.P (NYSE: CHKM) shares currently have a dividend yield of 5.60%. Chesapeake Midstream Partners, L.P. owns, operates, develops, and acquires natural gas, natural gas liquids, and oil gathering systems, as well as other midstream energy assets in the United States. The company has a P/E ratio of 35.83. Currently there are 8 analysts that rate Chesapeake Midstream Partners L.P a buy, no analysts rate it a sell, and 2 rate it a hold. The average volume for Chesapeake Midstream Partners L.P has been 386,900 shares per day over the past 30 days. Chesapeake Midstream Partners L.P has a market cap of $2.3 billion and is part of the energy industry. Shares are up 18% year to date as of the close of trading on Monday. TheStreet Ratings rates Chesapeake Midstream Partners L.P as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow and generally weak debt management. Highlights from the ratings report include:
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CHESAPEAKE MIDSTRM PRTNRS-LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Net operating cash flow has significantly decreased to $67.22 million or 51.03% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Despite currently having a low debt-to-equity ratio of 0.48, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that CHKM's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.69 is low and demonstrates weak liquidity.
- After a year of stock price fluctuations, the net result is that CHKM's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- CHESAPEAKE MIDSTRM PRTNRS-LP has improved earnings per share by 25.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CHESAPEAKE MIDSTRM PRTNRS-LP reported lower earnings of $1.36 versus $1.40 in the prior year. This year, the market expects an improvement in earnings ($1.44 versus $1.36).
- You can view the full Chesapeake Midstream Partners L.P Ratings Report.
- 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 97.6% when compared to the same quarter one year ago, falling from -$1.93 million to -$3.80 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN RLTY CAP PPTY INC's return on equity significantly trails that of both the industry average and the S&P 500.
- AMERICAN RLTY CAP PPTY INC has exprienced 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AMERICAN RLTY CAP PPTY INC reported poor results of -$0.73 versus -$0.24 in the prior year. This year, the market expects an improvement in earnings (-$0.30 versus -$0.73).
- Compared to its closing price of one year ago, ARCP's share price has jumped by 27.92%, exceeding the performance of the broader market during that same time frame. Regarding the future course of this stock, we feel that the risks involved in investing in ARCP do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
- Net operating cash flow has significantly increased by 291.58% to $2.65 million when compared to the same quarter last year. In addition, AMERICAN RLTY CAP PPTY INC has also vastly surpassed the industry average cash flow growth rate of 32.95%.
- You can view the full American Realty Capital Properties Ratings Report.
- PGH'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 45.60%, 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. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, PGH is still more expensive than most of the other companies in its industry.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PENGROWTH ENERGY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite currently having a low debt-to-equity ratio of 0.42, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.45 is very low and demonstrates very weak liquidity.
- PENGROWTH ENERGY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. 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, PENGROWTH ENERGY CORP reported lower earnings of $0.02 versus $0.26 in the prior year.
- Net operating cash flow has slightly increased to $207.68 million or 1.53% when compared to the same quarter last year. Despite an increase in cash flow, PENGROWTH ENERGY CORP's cash flow growth rate is still lower than the industry average growth rate of 28.97%.
- You can view the full Pengrowth Energy Ratings Report.
- Our dividend calendar.