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 "Buy." Spectra Energy Partners (NYSE: SEP) shares currently have a dividend yield of 4.50%. Spectra Energy Partners, LP operates as an investment arm of Spectra Energy Corp. The company has a P/E ratio of 27.42. The average volume for Spectra Energy Partners has been 304,500 shares per day over the past 30 days. Spectra Energy Partners has a market cap of $4.7 billion and is part of the energy industry. Shares are up 44.5% year to date as of the close of trading on Monday. TheStreet Ratings rates Spectra Energy Partners as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, expanding profit margins, good cash flow from operations, increase in net income 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:
- Compared to its closing price of one year ago, SEP's share price has jumped by 42.08%, exceeding the performance of the broader market during that same time frame. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
- The gross profit margin for SPECTRA ENERGY PARTNERS LP is currently very high, coming in at 70.44%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 91.78% significantly outperformed against the industry average.
- Net operating cash flow has increased to $72.50 million or 26.08% when compared to the same quarter last year. In addition, SPECTRA ENERGY PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of -26.07%.
- 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 6.7% when compared to the same quarter one year prior, going from $52.40 million to $55.90 million.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.8%. Since the same quarter one year prior, revenues slightly dropped by 1.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- You can view the full Spectra Energy Partners Ratings Report.
- Powered by its strong earnings growth of 26.31% and other important driving factors, this stock has surged by 44.95% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, PSE should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Oil, Gas & Consumable Fuels industry average. The net income increased by 26.5% when compared to the same quarter one year prior, rising from $13.57 million to $17.17 million.
- The gross profit margin for PIONEER SOUTHWEST ENERGY -LP is rather high; currently it is at 61.74%. Regardless of PSE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PSE's net profit margin of 36.02% significantly outperformed against the industry.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.8%. Since the same quarter one year prior, revenues slightly dropped by 6.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- 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. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PIONEER SOUTHWEST ENERGY -LP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- You can view the full Pioneer Southwest Energy Partners Ratings Report.
- RDS.A's debt-to-equity ratio is very low at 0.20 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.85 is somewhat weak and could be cause for future problems.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.8%. Since the same quarter one year prior, revenues slightly dropped by 5.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- ROYAL DUTCH SHELL PLC's earnings per share declined by 7.8% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, ROYAL DUTCH SHELL PLC reported lower earnings of $8.50 versus $9.94 in the prior year. This year, the market expects an improvement in earnings ($16.46 versus $8.50).
- In its most recent trading session, RDS.A 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. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full Royal Dutch Shell Ratings Report.
- Our dividend calendar.