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." Energy Transfer Partners L.P (NYSE: ETP) shares currently have a dividend yield of 6.90%. Energy Transfer Partners, L.P. engages in the natural gas midstream, and intrastate transportation and storage businesses in the United States. The company has a P/E ratio of 44.88. The average volume for Energy Transfer Partners L.P has been 1,425,600 shares per day over the past 30 days. Energy Transfer Partners L.P has a market cap of $19.6 billion and is part of the energy industry. Shares are up 20.8% year to date as of the close of trading on Thursday. TheStreet Ratings rates Energy Transfer Partners L.P as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income, solid stock price performance and growth in earnings per share. 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:
- ETP's very impressive revenue growth greatly exceeded the industry average of 10.2%. Since the same quarter one year prior, revenues leaped by 851.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 187.2% when compared to the same quarter one year prior, rising from $111.42 million to $320.00 million.
- ENERGY TRANSFER PARTNERS -LP'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, ENERGY TRANSFER PARTNERS -LP increased its bottom line by earning $6.69 versus $2.17 in the prior year. For the next year, the market is expecting a contraction of 67.7% in earnings ($2.16 versus $6.69).
- The debt-to-equity ratio of 1.34 is relatively high when compared with the industry average, suggesting a need for better debt level management.
- You can view the full Energy Transfer Partners L.P Ratings Report.