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." American Midstream Partners (NYSE: AMID) shares currently have a dividend yield of 10.30%. American Midstream Partners, LP engages in gathering, treating, processing, and transporting natural gas in the Gulf Coast and Southeast regions of the United States. The company has a P/E ratio of 93.28. Currently there is 1 analyst that rates American Midstream Partners a buy, no analysts rate it a sell, and 3 rate it a hold. The average volume for American Midstream Partners has been 28,600 shares per day over the past 30 days. American Midstream Partners has a market cap of $77.6 million and is part of the utilities industry. Shares are up 25.3% year to date as of the close of trading on Thursday. TheStreet Ratings rates American Midstream Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, poor profit margins, generally disappointing historical performance in the stock itself and unimpressive growth in net income. Highlights from the ratings report include:
- The debt-to-equity ratio of 1.31 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.11, which clearly demonstrates the inability to cover short-term cash needs.
- The gross profit margin for AMERICAN MIDSTREAM PRTNRS LP is currently extremely low, coming in at 5.30%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -7.59% is significantly below that of the industry average.
- AMID'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 25.35%, 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. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The change in net income from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Oil, Gas & Consumable Fuels industry average. The net income has decreased by 2.6% when compared to the same quarter one year ago, dropping from -$4.17 million to -$4.28 million.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.0%. Since the same quarter one year prior, revenues slightly dropped by 2.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full American Midstream Partners 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 Media industry. The net income has significantly decreased by 104.0% when compared to the same quarter one year ago, falling from $12.68 million to -$0.51 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. In comparison to the other companies in the Media industry and the overall market, CHARM COMMUNICATIONS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- The gross profit margin for CHARM COMMUNICATIONS INC is currently lower than what is desirable, coming in at 29.40%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -1.04% is significantly below that of the industry average.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 44.38%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 103.22% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- CHARM COMMUNICATIONS 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. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CHARM COMMUNICATIONS INC increased its bottom line by earning $1.12 versus $0.94 in the prior year. For the next year, the market is expecting a contraction of 97.5% in earnings ($0.03 versus $1.12).
- You can view the full Charm Communications Ratings Report.
- 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 Diversified Financial Services industry and the overall market, LIFE PARTNERS HOLDINGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- In its most recent trading session, LPHI has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- LIFE PARTNERS HOLDINGS INC has improved earnings per share by 20.0% 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, LIFE PARTNERS HOLDINGS INC swung to a loss, reporting -$0.17 versus $1.25 in the prior year.
- The revenue fell significantly faster than the industry average of 6.9%. Since the same quarter one year prior, revenues fell by 35.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- LPHI has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 2.60, which clearly demonstrates the ability to cover short-term cash needs.
- You can view the full Life Partners Holdings Ratings Report.
- Our dividend calendar.