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." Highway Holdings (NASDAQ: HIHO) shares currently have a dividend yield of 7.70%. Highway Holdings Limited, through its subsidiaries, manufactures and sells metal, plastic, electric and electronic components, subassemblies, and finished products for original equipment manufacturers and contract manufacturers. The company has a P/E ratio of 17.33. The average volume for Highway Holdings has been 53,400 shares per day over the past 30 days. Highway Holdings has a market cap of $7.9 million and is part of the industrial industry. Shares are up 10.1% year to date as of the close of trading on Friday. TheStreet Ratings rates Highway Holdings as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, compelling growth in net income, attractive valuation levels and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 17.4%. Since the same quarter one year prior, revenues rose by 11.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- HIHO's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 2.50, which clearly demonstrates the ability to cover short-term cash needs.
- 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 Machinery industry average. The net income increased by 16.3% when compared to the same quarter one year prior, going from $0.13 million to $0.15 million.
- HIGHWAY HOLDINGS LTD has improved earnings per share by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. During the past fiscal year, HIGHWAY HOLDINGS LTD increased its bottom line by earning $0.12 versus $0.05 in the prior year.
- You can view the full Highway Holdings Ratings Report.
- MARPS has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign.
- The gross profit margin for MARINE PETROLEUM TRUST is currently very high, coming in at 100.00%. MARPS has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, MARPS's net profit margin of 97.08% significantly outperformed against the industry.
- MARINE PETROLEUM TRUST's earnings per share declined by 24.5% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, MARINE PETROLEUM TRUST increased its bottom line by earning $1.92 versus $1.59 in the prior year.
- MARPS, with its decline in revenue, underperformed when compared the industry average of 10.1%. Since the same quarter one year prior, revenues fell by 22.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, MARINE PETROLEUM TRUST's return on equity significantly exceeds that of both the industry average and the S&P 500.
- You can view the full Marine Petroleum Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.2%. Since the same quarter one year prior, revenues slightly increased by 6.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.77, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.08, which illustrates the ability to avoid short-term cash problems.
- Net operating cash flow has significantly increased by 1477.57% to $2.27 million when compared to the same quarter last year. In addition, COMPASS DIVERSIFIED HOLDINGS has also vastly surpassed the industry average cash flow growth rate of 99.18%.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. 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.
- COMPASS DIVERSIFIED HOLDINGS has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, COMPASS DIVERSIFIED HOLDINGS continued to lose money by earning -$0.05 versus -$0.81 in the prior year. This year, the market expects an improvement in earnings ($1.77 versus -$0.05).
- You can view the full Compass Diversified Holdings Shares of Bene Ratings Report.
- Our dividend calendar.