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." NGL Energy Partners (NYSE: NGL) shares currently have a dividend yield of 7.30%. NGL Energy Partners LP, through its subsidiaries, engages in propane and other natural gas liquids businesses in the United States. The company operates in four segments: Retail Propane, Natural Gas Liquids Logistics, Crude Oil Logistics, and Water Services. The company has a P/E ratio of 20.04. Currently there are 3 analysts that rate NGL Energy Partners a buy, no analysts rate it a sell, and none rate it a hold. The average volume for NGL Energy Partners has been 110,000 shares per day over the past 30 days. NGL Energy Partners has a market cap of $1.2 billion and is part of the energy industry. Shares are up 9.3% year to date as of the close of trading on Tuesday. TheStreet Ratings rates NGL Energy Partners as a sell. Among the areas we feel are negative, one of the most important has been poor profit margins. Highlights from the ratings report include:
- The gross profit margin for NGL ENERGY PARTNERS LP is currently extremely low, coming in at 10.10%. Regardless of NGL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.00% trails the industry average.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NGL ENERGY PARTNERS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- NGL's debt-to-equity ratio of 0.96 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.85 is weak.
- Compared to where it was a year ago today, the stock is now trading at a higher level, and has traded in line with the S&P 500. 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.
- NGL ENERGY PARTNERS LP reported significant earnings per share improvement 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, NGL ENERGY PARTNERS LP swung to a loss, reporting -$0.09 versus $0.45 in the prior year. This year, the market expects an improvement in earnings ($1.60 versus -$0.09).
- You can view the full NGL Energy Partners Ratings Report.