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 "Hold." LRR Energy (NYSE: LRE) shares currently have a dividend yield of 11.20%. LRR Energy, L.P., through its subsidiary, LRE Operating, LLC, engages in the acquisition, exploitation, development, and operation of oil and natural gas properties in North America. The company has a P/E ratio of 31.72. Currently there are 4 analysts that rate LRR Energy a buy, no analysts rate it a sell, and 3 rate it a hold. The average volume for LRR Energy has been 155,500 shares per day over the past 30 days. LRR Energy has a market cap of $269.0 million and is part of the energy industry. Shares are down 0.5% year to date as of the close of trading on Monday. TheStreet Ratings rates LRR Energy as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- LRE's revenue growth has slightly outpaced the industry average of 2.9%. Since the same quarter one year prior, revenues slightly increased by 0.4%. 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.
- The gross profit margin for LRR ENERGY LP is currently very high, coming in at 73.30%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -1.86% trails the industry average.
- Net operating cash flow has increased to $17.63 million or 10.00% when compared to the same quarter last year. Despite an increase in cash flow, LRR ENERGY LP's cash flow growth rate is still lower than the industry average growth rate of 29.14%.
- LRR ENERGY LP 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, LRR ENERGY LP reported lower earnings of $0.00 versus $2.42 in the prior year. This year, the market expects an increase in earnings to $0.48 from $0.00.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 110.7% when compared to the same quarter one year ago, falling from $4.67 million to -$0.50 million.
- You can view the full LRR Energy Ratings Report.