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 "Hold." Transportadora de Gas del Sur (NYSE: TGS) shares currently have a dividend yield of 10.10%. Transportadora de Gas del Sur S.A. engages in the transportation of natural gas primarily in Latin America. The company has a P/E ratio of 1.15. The average volume for Transportadora de Gas del Sur has been 52,300 shares per day over the past 30 days. Transportadora de Gas del Sur has a market cap of $260.6 million and is part of the utilities industry. Shares are down 5.7% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Transportadora de Gas del Sur as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and weak operating cash flow. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 3.3%. Since the same quarter one year prior, revenues rose by 20.1%. 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.
- The debt-to-equity ratio is somewhat low, currently at 0.92, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, TGS has a quick ratio of 1.70, which demonstrates the ability of the company to cover short-term liquidity needs.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Gas Utilities industry average. The net income has decreased by 14.2% when compared to the same quarter one year ago, dropping from $23.10 million to $19.82 million.
- Net operating cash flow has decreased to $24.13 million or 28.26% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Transportadora de Gas del Sur Ratings Report.
- CLCT 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. To add to this, CLCT has a quick ratio of 2.14, which demonstrates the ability of the company to cover short-term liquidity needs.
- 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. When compared to other companies in the Diversified Consumer Services industry and the overall market, COLLECTORS UNIVERSE INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- COLLECTORS UNIVERSE INC's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, COLLECTORS UNIVERSE INC increased its bottom line by earning $0.86 versus $0.64 in the prior year.
- Net operating cash flow has significantly decreased to $0.72 million or 72.09% when compared to the same quarter last year. Despite a decrease in cash flow of 72.09%, COLLECTORS UNIVERSE INC is in line with the industry average cash flow growth rate of -76.81%.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Diversified Consumer Services industry. The net income has significantly decreased by 48.3% when compared to the same quarter one year ago, falling from $1.09 million to $0.56 million.
- You can view the full Collectors Universe Ratings Report.
- The revenue growth came in higher than the industry average of 4.8%. Since the same quarter one year prior, revenues rose by 28.4%. 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.
- The gross profit margin for HORIZON TECHNOLOGY FINANCE is rather high; currently it is at 62.30%. Regardless of HRZN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HRZN's net profit margin of -55.56% significantly underperformed when compared to the industry average.
- HORIZON TECHNOLOGY FINANCE 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 reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, HORIZON TECHNOLOGY FINANCE reported lower earnings of $0.56 versus $1.44 in the prior year. This year, the market expects an improvement in earnings ($1.40 versus $0.56).
- Net operating cash flow has significantly decreased to -$10.75 million or 137.83% 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.
- The share price of HORIZON TECHNOLOGY FINANCE has not done very well: it is down 18.73% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full Horizon Technology Finance Corp BDC Ratings Report.
- Our dividend calendar.