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." PVR Partners (NYSE: PVR) shares currently have a dividend yield of 9.30%. PVR Partners, L.P. engages in the gathering and processing of natural gas; and management of coal and natural resource properties in the United States. The company operates in three segments: Eastern Midstream, Midcontinent Midstream, and Coal and Natural Resource Management. The average volume for PVR Partners has been 627,200 shares per day over the past 30 days. PVR Partners has a market cap of $2.3 billion and is part of the utilities industry. Shares are down 4.1% year to date as of the close of trading on Thursday. TheStreet Ratings rates PVR Partners as a hold. The company's strongest point has been its expanding profit margins. At the same time, however, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity. Highlights from the ratings report include:
- PVR, with its decline in revenue, slightly underperformed the industry average of 1.1%. Since the same quarter one year prior, revenues slightly dropped by 2.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- PVR PARTNERS 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. 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, PVR PARTNERS LP swung to a loss, reporting -$1.60 versus $1.40 in the prior year. This year, the market expects an improvement in earnings ($0.70 versus -$1.60).
- In its most recent trading session, PVR has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- The debt-to-equity ratio of 1.17 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, PVR maintains a poor quick ratio of 0.74, which illustrates the inability to avoid short-term cash problems.
- 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, PVR PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full PVR Partners Ratings Report.