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." Enterprise Products Partners (NYSE: EPD) shares currently have a dividend yield of 4.40%. Enterprise Products Partners L.P. provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. The company has a P/E ratio of 21.58. The average volume for Enterprise Products Partners has been 1,174,600 shares per day over the past 30 days. Enterprise Products Partners has a market cap of $54.5 billion and is part of the energy industry. Shares are up 21.2% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Enterprise Products Partners as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, solid stock price performance, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- EPD's revenue growth has slightly outpaced the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 1.2%. 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.
- ENTERPRISE PRODS PRTNRS -LP has improved earnings per share by 13.7% 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. We feel that this trend should continue. During the past fiscal year, ENTERPRISE PRODS PRTNRS -LP increased its bottom line by earning $2.71 versus $2.37 in the prior year. This year, the market expects an improvement in earnings ($2.83 versus $2.71).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry average. The net income increased by 15.7% when compared to the same quarter one year prior, going from $651.30 million to $753.50 million.
- Net operating cash flow has significantly increased by 65.30% to $999.90 million when compared to the same quarter last year. In addition, ENTERPRISE PRODS PRTNRS -LP has also vastly surpassed the industry average cash flow growth rate of -23.86%.
- You can view the full Enterprise Products Partners Ratings Report.