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." Enterprise Products Partners (NYSE: EPD) shares currently have a dividend yield of 4.30%. Enterprise Products Partners L.P. provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. The company has a P/E ratio of 22.60. Currently there are 16 analysts that rate Enterprise Products Partners a buy, no analysts rate it a sell, and 1 rates it a hold. The average volume for Enterprise Products Partners has been 1,400,000 shares per day over the past 30 days. Enterprise Products Partners has a market cap of $55.1 billion and is part of the energy industry. Shares are up 19.1% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Enterprise Products Partners as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, notable return on equity and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- ENTERPRISE PRODS PRTNRS -LP's earnings per share declined by 17.1% 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, ENTERPRISE PRODS PRTNRS -LP increased its bottom line by earning $2.71 versus $2.37 in the prior year. This year, the market expects an improvement in earnings ($2.72 versus $2.71).
- 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 on the basis of return on equity, ENTERPRISE PRODS PRTNRS -LP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- Net operating cash flow has increased to $1,275.10 million or 15.67% when compared to the same quarter last year. Despite an increase in cash flow, ENTERPRISE PRODS PRTNRS -LP's average is still marginally south of the industry average growth rate of 20.23%.
- EPD, with its decline in revenue, slightly underperformed the industry average of 1.7%. Since the same quarter one year prior, revenues slightly dropped by 4.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full Enterprise Products Partners Ratings Report.
- LEXMARK INTL 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. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, LEXMARK INTL INC reported lower earnings of $1.49 versus $4.11 in the prior year. This year, the market expects an improvement in earnings ($3.84 versus $1.49).
- LXK, with its decline in revenue, underperformed when compared the industry average of 18.0%. Since the same quarter one year prior, revenues slightly dropped by 8.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Despite currently having a low debt-to-equity ratio of 0.51, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.99 is weak.
- 43.90% is the gross profit margin for LEXMARK INTL INC which we consider to be strong. Regardless of LXK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LXK's net profit margin of 0.65% is significantly lower than the industry average.
- Net operating cash flow has decreased to $138.40 million or 15.60% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Lexmark International Ratings Report.
- The revenue growth came in higher than the industry average of 7.0%. Since the same quarter one year prior, revenues rose by 18.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. 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.
- PDL BIOPHARMA INC has improved earnings per share by 41.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, PDL BIOPHARMA INC increased its bottom line by earning $1.47 versus $1.15 in the prior year. This year, the market expects an improvement in earnings ($1.70 versus $1.47).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Biotechnology industry. The net income increased by 26.9% when compared to the same quarter one year prior, rising from $38.94 million to $49.41 million.
- Net operating cash flow has increased to $51.59 million or 14.28% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -33.39%.
- You can view the full PDL BioPharma Ratings Report.
- Our dividend calendar.