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 "Sell." Life Partners Holdings (NASDAQ: LPHI) shares currently have a dividend yield of 11.80%. Life Partners Holdings, Inc., through its subsidiary, Life Partners, Inc., operates in the secondary market for life insurance in the United States. It facilitates the sale of life settlements between sellers and purchasers, but does not take possession or control of the policies. The average volume for Life Partners Holdings has been 94,800 shares per day over the past 30 days. Life Partners Holdings has a market cap of $63.0 million and is part of the insurance industry. Shares are up 28.5% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Life Partners Holdings as a sell. Among the areas we feel are negative, one of the most important has been an overall disappointing return on equity. Highlights from the ratings report include:
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Diversified Financial Services industry and the overall market, LIFE PARTNERS HOLDINGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- LIFE PARTNERS HOLDINGS INC has improved earnings per share by 20.0% 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, LIFE PARTNERS HOLDINGS INC swung to a loss, reporting -$0.17 versus $1.25 in the prior year.
- The revenue fell significantly faster than the industry average of 4.1%. Since the same quarter one year prior, revenues fell by 35.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- LPHI 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 2.60, which clearly demonstrates the ability to cover short-term cash needs.
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Diversified Financial Services industry average. The net income increased by 30.4% when compared to the same quarter one year prior, rising from -$1.08 million to -$0.75 million.
- You can view the full Life Partners Holdings Ratings Report.