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 4 stocks with substantial yields, that ultimately, we have rated "Hold." Inergy L.P (NYSE: NRGY) shares currently have a dividend yield of 4.80%. 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 6.17. The average volume for Inergy L.P has been 478,300 shares per day over the past 30 days. Inergy L.P has a market cap of $3.2 billion and is part of the utilities industry. Shares are up 34.6% year to date as of the close of trading on Friday. TheStreet Ratings rates Inergy L.P as a hold. Among the primary strengths of the company is its solid stock price performance. At the same time, however, we also find weaknesses including unimpressive growth in net income, poor profit margins and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Compared to its closing price of one year ago, NRGY's share price has jumped by 36.36%, 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.
- NRGY, with its decline in revenue, underperformed when compared the industry average of 8.8%. Since the same quarter one year prior, revenues fell by 32.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- INERGY LP has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, 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 97.1% in earnings ($0.12 versus $4.21).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 114.3% when compared to the same quarter one year ago, falling from $40.70 million to -$5.80 million.
- The gross profit margin for INERGY LP is rather low; currently it is at 18.60%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -1.28% is significantly below that of the industry average.
- You can view the full Inergy L.P Ratings Report.