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 "Buy." Dorchester Minerals L.P (NASDAQ: DMLP) shares currently have a dividend yield of 7.20%. Dorchester Minerals, L.P. engages in the acquisition, ownership, and administration of producing and nonproducing crude oil and natural gas royalty, net profits, and leasehold interests in 574 counties and parishes in 25 states. The company owns royalty properties and net profits interests. The company has a P/E ratio of 19.92. The average volume for Dorchester Minerals L.P has been 65,400 shares per day over the past 30 days. Dorchester Minerals L.P has a market cap of $739.3 million and is part of the financial services industry. Shares are up 18.6% year to date as of the close of trading on Monday. TheStreet Ratings rates Dorchester Minerals L.P as a buy. The company's strengths can be seen in multiple areas, such as its increase in net income, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry average. The net income increased by 4.8% when compared to the same quarter one year prior, going from $7.30 million to $7.65 million.
- DMLP 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 28.41, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for DORCHESTER MINERALS -LP is currently very high, coming in at 90.30%. Regardless of DMLP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DMLP's net profit margin of 57.86% significantly outperformed against the industry.
- 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. In comparison to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, DORCHESTER MINERALS -LP has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full Dorchester Minerals L.P Ratings Report.