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 "Sell." Enerplus (NYSE: ERF) shares currently have a dividend yield of 6.50%. Enerplus Corporation, together with subsidiaries, engages in the exploration and development of crude oil and natural gas in the United States and Canada. The average volume for Enerplus has been 892,400 shares per day over the past 30 days. Enerplus has a market cap of $3.2 billion and is part of the energy industry. Shares are up 22.6% year to date as of the close of trading on Monday. TheStreet Ratings rates Enerplus as a sell. Among the areas we feel are negative, one of the most important has been an overall disappointing return on equity. Highlights from the ratings report include:
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ENERPLUS CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- ENERPLUS CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, ENERPLUS CORP swung to a loss, reporting -$0.79 versus $0.62 in the prior year.
- The current debt-to-equity ratio, 0.37, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.44 is very weak and demonstrates a lack of ability to pay short-term obligations.
- The gross profit margin for ENERPLUS CORP is rather high; currently it is at 67.41%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -1.92% is in-line with the industry average.
- Net operating cash flow has significantly increased by 133.73% to $161.23 million when compared to the same quarter last year. In addition, ENERPLUS CORP has also vastly surpassed the industry average cash flow growth rate of -25.59%.
- You can view the full Enerplus Ratings Report.
- The share price of PENN WEST PETROLEUM LTD has not done very well: it is down 9.02% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- PENN WEST PETROLEUM LTD 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. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, PENN WEST PETROLEUM LTD reported lower earnings of $0.37 versus $1.37 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 264.4% when compared to the same quarter one year ago, falling from $59.00 million to -$97.00 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 Oil, Gas & Consumable Fuels industry and the overall market, PENN WEST PETROLEUM LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- PWE, with its decline in revenue, underperformed when compared the industry average of 10.7%. Since the same quarter one year prior, revenues fell by 20.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full Penn West Petroleum Ratings Report.
- 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. When compared to other companies in the Thrifts & Mortgage Finance industry and the overall market, HOME LOAN SERVICING SOLTNS's return on equity is below that of both the industry average and the S&P 500.
- The gross profit margin for HOME LOAN SERVICING SOLTNS is currently very high, coming in at 95.48%. It has increased significantly from the same period last year. Along with this, the net profit margin of 54.98% is above that of the industry average.
- Net operating cash flow has significantly increased by 5531.13% to $367.09 million when compared to the same quarter last year. In addition, HOME LOAN SERVICING SOLTNS has also vastly surpassed the industry average cash flow growth rate of -21.02%.
- This stock has increased by 71.60% over the past year, outperforming the rise in the S&P 500 Index during the same period. Despite the fact that the stock's value has already enjoyed nice gains in the past year, we feel that the risks surrounding an investment in this stock outweigh any potential future returns.
- HOME LOAN SERVICING SOLTNS reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, HOME LOAN SERVICING SOLTNS turned its bottom line around by earning $1.23 versus -$0.01 in the prior year. This year, the market expects an improvement in earnings ($1.85 versus $1.23).
- You can view the full Home Loan Servicing Solutions Ratings Report.
- Our dividend calendar.