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 "Buy." Suburban Propane Partners (NYSE: SPH) shares currently have a dividend yield of 7.50%. Suburban Propane Partners, L.P., through its subsidiaries, engages in the retail marketing and distribution of propane, fuel oil, and refined fuels. The company has a P/E ratio of 34.59. The average volume for Suburban Propane Partners has been 254,800 shares per day over the past 30 days. Suburban Propane Partners has a market cap of $2.8 billion and is part of the utilities industry. Shares are up 20.7% year to date as of the close of trading on Monday. TheStreet Ratings rates Suburban Propane Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- SPH's very impressive revenue growth greatly exceeded the industry average of 17.4%. Since the same quarter one year prior, revenues leaped by 89.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Gas Utilities industry. The net income increased by 164.6% when compared to the same quarter one year prior, rising from $49.57 million to $131.15 million.
- Net operating cash flow has significantly increased by 70.93% to $72.43 million when compared to the same quarter last year. In addition, SUBURBAN PROPANE PRTNRS -LP has also vastly surpassed the industry average cash flow growth rate of -4.31%.
- Even though the current debt-to-equity ratio is 1.19, it is still below the industry average, suggesting that this level of debt is acceptable within the Gas Utilities industry. Despite the fact that SPH's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.60 is high and demonstrates strong liquidity.
- SUBURBAN PROPANE PRTNRS -LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SUBURBAN PROPANE PRTNRS -LP reported lower earnings of $0.48 versus $3.22 in the prior year. This year, the market expects an improvement in earnings ($2.05 versus $0.48).
- You can view the full Suburban Propane Partners Ratings Report.