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." Inergy L.P (NYSE: NRGY) shares currently have a dividend yield of 4.90%. Inergy, L.P., an integrated energy midstream master limited partnership, engages in the storage and transportation of natural gas and natural gas liquids (NGL) in the United States and Canada. The company has a P/E ratio of 6.11. The average volume for Inergy L.P has been 463,400 shares per day over the past 30 days. Inergy L.P has a market cap of $3.1 billion and is part of the utilities industry. Shares are up 30.4% year to date as of the close of trading on Thursday. TheStreet Ratings rates Inergy L.P as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, compelling growth in net income and notable return on equity. However, as a counter to these strengths, we find that the company's profit margins have been poor overall. Highlights from the ratings report include:
- 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 132.5% when compared to the same quarter one year prior, rising from -$4.00 million to $1.30 million.
- NRGY, with its decline in revenue, underperformed when compared the industry average of 6.7%. Since the same quarter one year prior, revenues fell by 34.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- INERGY LP 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, INERGY LP increased its bottom line by earning $4.21 versus $0.28 in the prior year. For the next year, the market is expecting a contraction of 95.7% in earnings ($0.18 versus $4.21).
- The gross profit margin for INERGY LP is rather low; currently it is at 18.20%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.29% trails that of the industry average.
- You can view the full Inergy L.P Ratings Report.