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 "Hold." NuStar GP Holdings (NYSE: NSH) shares currently have a dividend yield of 8.50%. NuStar GP Holdings, LLC owns general partner and limited partner interests in NuStar Energy L.P. that engages in the terminalling and storage of petroleum products, transportation of petroleum products and anhydrous ammonia, and petroleum refining and marketing. The company has a P/E ratio of 514.40. The average volume for NuStar GP Holdings has been 199,800 shares per day over the past 30 days. NuStar GP Holdings has a market cap of $1.1 billion and is part of the energy industry. Shares are down 7% year to date as of the close of trading on Thursday. TheStreet Ratings rates NuStar GP Holdings as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and disappointing return on equity. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 10.7%. Since the same quarter one year prior, revenues slightly increased by 3.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- Net operating cash flow has increased to $11.67 million or 42.32% when compared to the same quarter last year. In addition, NUSTAR GP HOLDINGS LLC has also vastly surpassed the industry average cash flow growth rate of -25.84%.
- The net income growth from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income increased by 0.3% when compared to the same quarter one year prior, going from $11.05 million to $11.08 million.
- NSH has underperformed the S&P 500 Index, declining 14.19% from its price level of one year ago. 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.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NUSTAR GP HOLDINGS LLC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full NuStar GP Holdings Ratings Report.
- HGT 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.
- The gross profit margin for HUGOTON ROYALTY TRUST is currently very high, coming in at 100.00%. HGT has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, HGT's net profit margin of 96.92% significantly outperformed against the industry.
- 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- HUGOTON ROYALTY TRUST's earnings per share declined by 20.0% in the most recent quarter compared to 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, HUGOTON ROYALTY TRUST reported lower earnings of $0.58 versus $1.40 in the prior year.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has decreased by 20.4% when compared to the same quarter one year ago, dropping from $9.83 million to $7.82 million.
- You can view the full Hugoton Royalty Ratings Report.
- The revenue growth came in higher than the industry average of 12.3%. Since the same quarter one year prior, revenues rose by 27.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- 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. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, DYNEX CAPITAL INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- DYNEX CAPITAL INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, DYNEX CAPITAL INC increased its bottom line by earning $1.36 versus $1.05 in the prior year. For the next year, the market is expecting a contraction of 3.7% in earnings ($1.31 versus $1.36).
- In its most recent trading session, DX has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full Dynex Capital Ratings Report.
- Our dividend calendar.