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.