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." Permian Basin Royalty (NYSE: PBT) shares currently have a dividend yield of 7.70%. Permian Basin Royalty Trust owns overriding royalty interests in various oil and gas properties in the United States. The company has a P/E ratio of 15.77. The average volume for Permian Basin Royalty has been 174,600 shares per day over the past 30 days. Permian Basin Royalty has a market cap of $639.5 million and is part of the energy industry. Shares are up 13.8% year to date as of the close of trading on Thursday. TheStreet Ratings rates Permian Basin Royalty as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- PBT 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 the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.32, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for PERMIAN BASIN ROYALTY TRUST is currently very high, coming in at 100.00%. PBT has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, PBT's net profit margin of 98.20% significantly outperformed against the industry.
- PBT, with its decline in revenue, underperformed when compared the industry average of 8.8%. Since the same quarter one year prior, revenues fell by 34.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- PERMIAN BASIN ROYALTY TRUST's earnings per share declined by 35.5% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, PERMIAN BASIN ROYALTY TRUST reported lower earnings of $1.16 versus $1.36 in the prior year.
- 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 35.2% when compared to the same quarter one year ago, falling from $14.32 million to $9.28 million.
- You can view the full Permian Basin Royalty Ratings Report.