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 "Sell." Atlas Resource Partners (NYSE: ARP) shares currently have a dividend yield of 10.80%. Atlas Resource Partners, L.P. engages in the production of natural gas, crude oil, and natural gas liquids in basins across the United States. The company operates through three segments: Gas and Oil Production, Well Construction and Completion, and Other Partnership Management. The average volume for Atlas Resource Partners has been 492,000 shares per day over the past 30 days Atlas Resource Partners has a market cap of $1.1 billion and is part of the energy industry Shares are down 12.4% year to date as of the close of trading on Friday TheStreet Ratings rates Atlas Resource Partners as a sell. Among the areas we feel are negative, one of the most important has been very high debt management risk by most measures. Highlights from the ratings report include:
- Despite currently having a low debt-to-equity ratio of 0.52, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.26 is very low and demonstrates very weak liquidity.
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ATLAS RESOURCE PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- ARP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 31.77%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter.
- 36.58% is the gross profit margin for ATLAS RESOURCE PARTNERS LP which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -4.79% is in-line with the industry average.
- Net operating cash flow has significantly increased by 96.73% to -$0.68 million when compared to the same quarter last year. In addition, ATLAS RESOURCE PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of -25.63%.
- You can view the full Atlas Resource Partners Ratings Report.