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." Energy Transfer Equity (NYSE: ETE) shares currently have a dividend yield of 4.30%. Energy Transfer Equity, L.P., through its subsidiaries, provides diversified energy-related services in the United States. The company sells natural gas to electric utilities, independent power plants, local distribution companies, industrial end-users, and other marketing companies. The company has a P/E ratio of 50.44. The average volume for Energy Transfer Equity has been 718,800 shares per day over the past 30 days. Energy Transfer Equity has a market cap of $16.5 billion and is part of the energy industry. Shares are up 32% year to date as of the close of trading on Thursday. TheStreet Ratings rates Energy Transfer Equity as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- ETE's very impressive revenue growth greatly exceeded the industry average of 1.3%. Since the same quarter one year prior, revenues leaped by 422.5%. 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.
- Compared to its closing price of one year ago, ETE's share price has jumped by 40.98%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- ENERGY TRANSFER EQUITY 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. 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, ENERGY TRANSFER EQUITY LP increased its bottom line by earning $1.61 versus $1.40 in the prior year. This year, the market expects an improvement in earnings ($2.38 versus $1.61).
- 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, ENERGY TRANSFER EQUITY LP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- The gross profit margin for ENERGY TRANSFER EQUITY LP is currently extremely low, coming in at 8.70%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 0.43% trails that of the industry average.
- You can view the full Energy Transfer Equity Ratings Report.
- VIV's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.09, which illustrates the ability to avoid short-term cash problems.
- VIV, with its decline in revenue, slightly underperformed the industry average of 1.3%. Since the same quarter one year prior, revenues slightly dropped by 7.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, TELEFONICA BRASIL SA has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, VIV has underperformed the S&P 500 Index, declining 14.86% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full Telefonica Brasil S.A Ratings Report.
- The revenue growth greatly exceeded the industry average of 1.3%. Since the same quarter one year prior, revenues rose by 30.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- GENESIS ENERGY -LP reported significant earnings per share improvement 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, GENESIS ENERGY -LP increased its bottom line by earning $1.23 versus $0.75 in the prior year. This year, the market expects an improvement in earnings ($1.57 versus $1.23).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 246.5% when compared to the same quarter one year prior, rising from $7.77 million to $26.94 million.
- Net operating cash flow has significantly increased by 141.98% to $46.37 million when compared to the same quarter last year. In addition, GENESIS ENERGY -LP has also vastly surpassed the industry average cash flow growth rate of 20.25%.
- Powered by its strong earnings growth of 240.00% and other important driving factors, this stock has surged by 48.80% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- You can view the full Genesis Energy Ratings Report.
- Our dividend calendar.