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 4.80%. Spectra Energy Partners, LP operates as an investment arm of Spectra Energy Corp. The company has a P/E ratio of 26.61. The average volume for Spectra Energy Partners has been 301,700 shares per day over the past 30 days. Spectra Energy Partners has a market cap of $4.4 billion and is part of the energy industry. Shares are up 36.5% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Spectra Energy Partners as a buy. The company's strengths can be seen in multiple areas, such as its increase in net income, expanding profit margins, good cash flow from operations, solid stock price performance 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 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.
- 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 -86.32%.
- Compared to its closing price of one year ago, SEP's share price has jumped by 37.32%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 6.2%. 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.