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 "Sell." Life Partners Holdings (NASDAQ: LPHI) shares currently have a dividend yield of 7.10%. Life Partners Holdings, Inc., through its subsidiary, Life Partners, Inc., operates in the secondary market for life insurance worldwide. It facilitates the sale of life settlements between sellers and purchasers, but does not take possession or control of the policies. The average volume for Life Partners Holdings has been 54,800 shares per day over the past 30 days. Life Partners Holdings has a market cap of $52.8 million and is part of the insurance industry. Shares are up 7.6% year to date as of the close of trading on Thursday. TheStreet Ratings rates Life Partners Holdings as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- 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 Diversified Financial Services industry. The net income has significantly decreased by 55.5% when compared to the same quarter one year ago, falling from -$0.84 million to -$1.31 million.
- 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 Diversified Financial Services industry and the overall market, LIFE PARTNERS HOLDINGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to -$2.56 million or 31.13% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- LPHI, with its decline in revenue, underperformed when compared the industry average of 4.2%. Since the same quarter one year prior, revenues fell by 31.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- LIFE PARTNERS HOLDINGS INC's earnings per share declined by 40.0% in the most recent quarter compared to the same quarter a year ago. Stable Earnings per share over the past year indicate the company has sound management over its earnings and share float. During the past fiscal year, LIFE PARTNERS HOLDINGS INC continued to lose money by earning -$0.16 versus -$0.17 in the prior year.
- You can view the full Life Partners Holdings Ratings Report.