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 "Hold." Regency Energy Partners (NYSE: RGP) shares currently have a dividend yield of 6.90%. Regency Energy Partners LP engages in gathering, treating, processing, compressing, and transporting natural gas and natural gas liquids (NGLs). The company operates in Gathering and Processing, Natural Gas Transportation, NGL Services, and Contract Services segments. The average volume for Regency Energy Partners has been 560,900 shares per day over the past 30 days. Regency Energy Partners has a market cap of $4.5 billion and is part of the energy industry. Shares are up 22.8% year to date as of the close of trading on Friday. TheStreet Ratings rates Regency Energy Partners as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, increase in stock price during the past year and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins. Highlights from the ratings report include:
- Net operating cash flow has increased to $67.00 million or 19.49% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -13.50%.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 8.8%. Since the same quarter one year prior, revenues slightly dropped by 2.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, REGENCY ENERGY PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for REGENCY ENERGY PARTNERS LP is rather low; currently it is at 21.50%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -1.43% is significantly below that of the industry average.
- You can view the full Regency Energy Partners Ratings Report.
- The revenue growth came in higher than the industry average of 3.1%. Since the same quarter one year prior, revenues rose by 31.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 41.70% and other important driving factors, this stock has surged by 65.05% over the past year, outperforming the rise in the S&P 500 Index during the same period. Although SIX had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
- SIX FLAGS ENTERTAINMENT CORP has improved earnings per share by 41.7% 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, SIX FLAGS ENTERTAINMENT CORP turned its bottom line around by earning $6.08 versus -$0.50 in the prior year. For the next year, the market is expecting a contraction of 61.3% in earnings ($2.36 versus $6.08).
- The debt-to-equity ratio is very high at 3.34 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, SIX maintains a poor quick ratio of 0.76, which illustrates the inability to avoid short-term cash problems.
- You can view the full Six Flags Entertainment Ratings Report.
- RSO's revenue growth has slightly outpaced the industry average of 9.6%. Since the same quarter one year prior, revenues rose by 12.5%. 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.
- Compared to its closing price of one year ago, RSO's share price has jumped by 25.47%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, RESOURCE CAPITAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- RESOURCE CAPITAL CORP's earnings per share declined by 38.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, RESOURCE CAPITAL CORP increased its bottom line by earning $0.72 versus $0.56 in the prior year. For the next year, the market is expecting a contraction of 11.1% in earnings ($0.64 versus $0.72).
- The change in net income from the same quarter one year ago has exceeded that of the Real Estate Investment Trusts (REITs) industry average, but is less than that of the S&P 500. The net income has decreased by 11.4% when compared to the same quarter one year ago, dropping from $14.48 million to $12.84 million.
- You can view the full Resource Capital Corporation Ratings Report.
- Our dividend calendar.