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 "Buy." Plains All American Pipeline (NYSE: PAA) shares currently have a dividend yield of 4.20%. Plains All American Pipeline, L.P., through its subsidiaries, engages in the transportation, storage, terminalling, and marketing of crude oil and refined products in the United States and Canada. The company operates in three segments: Transportation, Facilities, and Supply and Logistics. The company has a P/E ratio of 22.50. Currently there are 13 analysts that rate Plains All American Pipeline a buy, no analysts rate it a sell, and 5 rate it a hold. The average volume for Plains All American Pipeline has been 1,004,800 shares per day over the past 30 days. Plains All American Pipeline has a market cap of $18.2 billion and is part of the energy industry. Shares are up 19.5% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Plains All American Pipeline as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, increase in net income, reasonable valuation levels and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- PAA's revenue growth has slightly outpaced the industry average of 3.0%. Since the same quarter one year prior, revenues slightly increased by 6.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 38.56% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, PAA should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Oil, Gas & Consumable Fuels industry average. The net income increased by 15.1% when compared to the same quarter one year prior, going from $278.00 million to $320.00 million.
- PLAINS ALL AMER PIPELNE -LP reported flat earnings per share in the most recent quarter. 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, PLAINS ALL AMER PIPELNE -LP reported lower earnings of $2.40 versus $2.44 in the prior year. This year, the market expects an improvement in earnings ($2.94 versus $2.40).
- You can view the full Plains All American Pipeline Ratings Report.