Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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."Sabine Royalty (NYSE: SBR) shares currently have a dividend yield of 10.70%. Sabine Royalty Trust holds royalty and mineral interests in various oil and gas properties in the United States. The company has a P/E ratio of 13.77. The average volume for Sabine Royalty has been 17,700 shares per day over the past 30 days. Sabine Royalty has a market cap of $720.5 million and is part of the financial services industry. Shares are up 24.3% year to date as of the close of trading on Monday. TheStreet Ratings rates Sabine Royalty as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share. Highlights from the ratings report include:
- SBR has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.42, which clearly demonstrates the ability to cover short-term cash needs.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, SABINE ROYALTY TRUST's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for SABINE ROYALTY TRUST is currently very high, coming in at 100.00%. SBR has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, SBR's net profit margin of 95.62% significantly outperformed against the industry.
- SBR, with its decline in revenue, slightly underperformed the industry average of 1.3%. Since the same quarter one year prior, revenues fell by 11.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, SBR has underperformed the S&P 500 Index, declining 16.16% 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 Sabine Royalty Ratings Report.
- The revenue growth came in higher than the industry average of 1.3%. Since the same quarter one year prior, revenues slightly increased by 10.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NATURAL RESOURCE PARTNERS LP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- 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 455.6% when compared to the same quarter one year prior, rising from -$16.90 million to $60.11 million.
- The gross profit margin for NATURAL RESOURCE PARTNERS LP is currently very high, coming in at 95.10%. Regardless of NRP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NRP's net profit margin of 58.67% significantly outperformed against the industry.
- NATURAL RESOURCE PARTNERS 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, NATURAL RESOURCE PARTNERS LP increased its bottom line by earning $1.97 versus $0.50 in the prior year. For the next year, the market is expecting a contraction of 13.7% in earnings ($1.70 versus $1.97).
- You can view the full Natural Resources Partners L.P Ratings Report.
- The revenue growth greatly exceeded the industry average of 4.8%. Since the same quarter one year prior, revenues rose by 48.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 50.5% when compared to the same quarter one year prior, rising from $6.19 million to $9.32 million.
- Net operating cash flow has increased to -$72.53 million or 24.88% when compared to the same quarter last year. In addition, GOLUB CAPITAL BDC INC has also vastly surpassed the industry average cash flow growth rate of -113.26%.
- The gross profit margin for GOLUB CAPITAL BDC INC is rather high; currently it is at 67.20%. Regardless of GBDC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GBDC's net profit margin of 50.82% significantly outperformed against the industry.
- You can view the full Golub Capital BDC Ratings Report.
- Our dividend calendar.