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."Terra Nitrogen Company L.P (NYSE: TNH) shares currently have a dividend yield of 7.10%. Terra Nitrogen Company, L.P. engages in the production and sale of nitrogen fertilizer products. It primarily offers anhydrous ammonia and urea ammonium nitrate solutions. Terra Nitrogen GP Inc. serves as the general partner of the company. Terra Nitrogen Company, L.P. The company has a P/E ratio of 11.99. The average volume for Terra Nitrogen Company L.P has been 19,100 shares per day over the past 30 days. Terra Nitrogen Company L.P has a market cap of $3.8 billion and is part of the chemicals industry. Shares are down 4.7% year to date as of the close of trading on Friday. TheStreet Ratings rates Terra Nitrogen Company L.P as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- TNH's revenue growth has slightly outpaced the industry average of 1.1%. Since the same quarter one year prior, revenues slightly increased by 2.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- TNH 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 6.14, 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 Chemicals industry and the overall market, TERRA NITROGEN CO -LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for TERRA NITROGEN CO -LP is currently very high, coming in at 76.20%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 72.63% significantly outperformed against the industry average.
- Net operating cash flow has slightly increased to $146.80 million or 6.76% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -10.79%.
- You can view the full Terra Nitrogen Company L.P Ratings Report.
- The revenue growth came in higher than the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 6.3%. 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 TC PIPELINES LP is currently very high, coming in at 76.50%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 170.58% significantly outperformed against the industry average.
- Despite currently having a low debt-to-equity ratio of 0.53, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further.
- In its most recent trading session, TCP 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 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.
- TC PIPELINES LP's earnings per share declined by 26.8% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, TC PIPELINES LP reported lower earnings of $2.51 versus $3.04 in the prior year. For the next year, the market is expecting a contraction of 12.4% in earnings ($2.20 versus $2.51).
- You can view the full TC Pipelines Ratings Report.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. 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.
- ITURAN LOCATION & CONTROL 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. During the past fiscal year, ITURAN LOCATION & CONTROL increased its bottom line by earning $1.18 versus $1.01 in the prior year.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 178.4% when compared to the same quarter one year prior, rising from $1.58 million to $4.41 million.
- ITRN's revenue growth trails the industry average of 15.2%. Since the same quarter one year prior, revenues slightly increased by 3.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- ITRN's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.34, which illustrates the ability to avoid short-term cash problems.
- You can view the full Ituran Location and Control Ratings Report.
- Our dividend calendar.