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 5 stocks with substantial yields, that ultimately, we have rated "Hold." Regency Energy Partners (NYSE: RGP) shares currently have a dividend yield of 7.10%. Regency Energy Partners LP engages in gathering, treating, processing, compressing, and transporting natural gas and natural gas liquids (NGLs). The company operates in Gathering and Processing, Natural Gas Transportation, NGL Services, and Contract Services segments. The company has a P/E ratio of 198.54. The average volume for Regency Energy Partners has been 563,100 shares per day over the past 30 days. Regency Energy Partners has a market cap of $4.4 billion and is part of the energy industry. Shares are up 20.2% year to date as of the close of trading on Friday. TheStreet Ratings rates Regency Energy Partners as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins. Highlights from the ratings report include:
- Net operating cash flow has increased to $71.08 million or 44.05% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 20.63%.
- RGP, with its decline in revenue, slightly underperformed the industry average of 1.1%. Since the same quarter one year prior, revenues slightly dropped by 4.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 169.1% when compared to the same quarter one year ago, falling from $13.52 million to -$9.35 million.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, REGENCY ENERGY PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Regency Energy Partners Ratings Report.