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." LRR Energy (NYSE: LRE) shares currently have a dividend yield of 12.70%. LRR Energy, L.P., through its subsidiary, LRE Operating, LLC, engages in the acquisition, exploitation, development, and operation of oil and natural gas properties in North America. The average volume for LRR Energy has been 191,100 shares per day over the past 30 days. LRR Energy has a market cap of $296.6 million and is part of the energy industry. Shares are down 12% year to date as of the close of trading on Wednesday. TheStreet Ratings rates LRR Energy as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- 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, LRR ENERGY LP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $17.26 million or 16.31% when compared to the same quarter last year. Despite a decrease in cash flow of 16.31%, LRR ENERGY LP is still significantly exceeding the industry average of -86.32%.
- LRE has underperformed the S&P 500 Index, declining 8.09% from its price level of one year ago. 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.
- LRE, with its decline in revenue, slightly underperformed the industry average of 6.2%. Since the same quarter one year prior, revenues fell by 10.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- LRE's debt-to-equity ratio of 0.87 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.33 is sturdy.
- You can view the full LRR Energy Ratings Report.
- 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 Chemicals industry. The net income has decreased by 22.5% when compared to the same quarter one year ago, dropping from $19.37 million to $15.01 million.
- The debt-to-equity ratio is very high at 2.16 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, RNF has a quick ratio of 0.63, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- Net operating cash flow has decreased to $22.17 million or 37.72% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- RENTECH NITROGEN PARTNERS LP's earnings per share declined by 25.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, RENTECH NITROGEN PARTNERS LP increased its bottom line by earning $2.78 versus $0.36 in the prior year. For the next year, the market is expecting a contraction of 20.5% in earnings ($2.21 versus $2.78).
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Regardless of the rise in share value over the previous year, we feel that the risks involved in investing in this stock do not compensate for any future upside potential.
- You can view the full Rentech Nitrogen Partners Ratings Report.
- BOX SHIPS INC's earnings per share declined by 48.3% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern earnings per share over the past two years. During the past fiscal year, BOX SHIPS INC reported lower earnings of $0.67 versus $0.80 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 Marine industry. The net income has decreased by 13.8% when compared to the same quarter one year ago, dropping from $4.66 million to $4.02 million.
- 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. When compared to other companies in the Marine industry and the overall market, BOX SHIPS INC's return on equity is below that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 36.81%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 48.27% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- TEU's debt-to-equity ratio of 0.88 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.90 is weak.
- You can view the full Box Ships Ratings Report.
- Our dividend calendar.