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 4 stocks with substantial yields, that ultimately, we have rated "Buy." Copano Energy (NASDAQ: CPNO) shares currently have a dividend yield of 6.10%. Copano Energy, L.L.C. provides midstream services to natural gas producers in the United States. It operates in three segments: Texas, Oklahoma, and Rocky Mountains. Currently there are no analysts that rate Copano Energy a buy, no analysts rate it a sell, and 11 rate it a hold. The average volume for Copano Energy has been 761,300 shares per day over the past 30 days. Copano Energy has a market cap of $3.0 billion and is part of the energy industry. Shares are up 20% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Copano Energy as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 3.0%. Since the same quarter one year prior, revenues rose by 11.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- COPANO ENERGY LLC 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. 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, COPANO ENERGY LLC continued to lose money by earning -$2.49 versus -$2.86 in the prior year. This year, the market expects an improvement in earnings ($1.05 versus -$2.49).
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, COPANO ENERGY LLC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for COPANO ENERGY LLC is currently extremely low, coming in at 9.80%. Regardless of CPNO's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, CPNO's net profit margin of -10.41% significantly underperformed when compared to the industry average.
- You can view the full Copano Energy Ratings Report.