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 "Hold." NuStar GP Holdings (NYSE: NSH) shares currently have a dividend yield of 9.40%. NuStar GP Holdings, LLC owns general partner and limited partner interests in NuStar Energy L.P. that engages in the terminalling and storage of petroleum products, transportation of petroleum products and anhydrous ammonia, and petroleum refining and marketing. The company has a P/E ratio of 20.80. The average volume for NuStar GP Holdings has been 208,500 shares per day over the past 30 days. NuStar GP Holdings has a market cap of $993.2 million and is part of the energy industry. Shares are down 13.4% year to date as of the close of trading on Friday. TheStreet Ratings rates NuStar GP Holdings as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year. Highlights from the ratings report include:
- NSH's very impressive revenue growth greatly exceeded the industry average of 10.3%. Since the same quarter one year prior, revenues leaped by 141.4%. 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 Oil, Gas & Consumable Fuels industry. The net income increased by 137.8% when compared to the same quarter one year prior, rising from -$33.21 million to $12.56 million.
- NSH's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.41 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NUSTAR GP HOLDINGS LLC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- NSH's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 25.13%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, NSH is still more expensive than most of the other companies in its industry.
- You can view the full NuStar GP Holdings Ratings Report.
- The revenue growth greatly exceeded the industry average of 10.3%. Since the same quarter one year prior, revenues rose by 22.7%. 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.
- Net operating cash flow has slightly increased to $25.61 million or 9.08% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -17.92%.
- The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 29.5% when compared to the same quarter one year ago, falling from $7.81 million to $5.51 million.
- The debt-to-equity ratio of 1.49 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, PVR maintains a poor quick ratio of 0.98, which illustrates the inability to avoid short-term cash problems.
- You can view the full PVR Partners Ratings Report.
- The gross profit margin for RESOURCE CAPITAL CORP is rather high; currently it is at 65.30%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 25.43% trails the industry average.
- RSO, with its decline in revenue, underperformed when compared the industry average of 10.8%. Since the same quarter one year prior, revenues slightly dropped by 6.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 49.3% when compared to the same quarter one year ago, falling from $16.45 million to $8.33 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, RESOURCE CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Resource Capital Corporation Ratings Report.
- Our dividend calendar.