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 "Buy." El Paso Pipeline Partners (NYSE: EPB) shares currently have a dividend yield of 5.90%. El Paso Pipeline Partners, L.P. engages in the ownership and operation of interstate natural gas transportation and terminaling facilities in the United States. The company has a P/E ratio of 19.60. The average volume for El Paso Pipeline Partners has been 459,800 shares per day over the past 30 days. El Paso Pipeline Partners has a market cap of $9.3 billion and is part of the energy industry. Shares are up 16.4% year to date as of the close of trading on Friday. TheStreet Ratings rates El Paso Pipeline Partners as a buy. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, 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 has had generally high debt management risk by most measures that we evaluated. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 34.6% when compared to the same quarter one year prior, rising from $101.00 million to $136.00 million.
- The gross profit margin for EL PASO PIPELINE PARTNERS LP is currently very high, coming in at 71.31%. It has increased significantly from the same period last year. Along with this, the net profit margin of 37.88% significantly outperformed against the industry average.
- 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, EL PASO PIPELINE PARTNERS LP has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.7%. Since the same quarter one year prior, revenues slightly dropped by 2.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- You can view the full El Paso Pipeline Partners Ratings Report.