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 4 stocks with substantial yields, that ultimately, we have rated "Hold." Natural Resources Partners L.P (NYSE: NRP) shares currently have a dividend yield of 10.90%. Natural Resource Partners L.P., through its subsidiaries, engages in the ownership, management, and leasing of mineral properties in the United States. It owns coal reserves in Appalachia, the Illinois Basin, and the Western United States, as well as lignite reserves in the Gulf Coast region. The company has a P/E ratio of 11.04. The average volume for Natural Resources Partners L.P has been 239,700 shares per day over the past 30 days. Natural Resources Partners L.P has a market cap of $2.2 billion and is part of the metals & mining industry. Shares are up 8.1% year to date as of the close of trading on Thursday. TheStreet Ratings rates Natural Resources Partners L.P as a hold. The company's strengths can be seen in multiple areas, such as its expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, generally higher debt management risk and weak operating cash flow. Highlights from the ratings report include:
- The gross profit margin for NATURAL RESOURCE PARTNERS LP is currently very high, coming in at 93.43%. Regardless of NRP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NRP's net profit margin of 52.03% significantly outperformed against the industry.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, NATURAL RESOURCE PARTNERS LP has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- NRP, with its decline in revenue, slightly underperformed the industry average of 10.3%. Since the same quarter one year prior, revenues fell by 12.9%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Currently the debt-to-equity ratio of 1.75 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Regardless of the company's weak debt-to-equity ratio, NRP has managed to keep a strong quick ratio of 1.70, which demonstrates the ability to cover short-term cash needs.
- Net operating cash flow has declined marginally to $79.74 million or 3.37% when compared to the same quarter last year. Despite a decrease in cash flow NATURAL RESOURCE PARTNERS LP is still fairing well by exceeding its industry average cash flow growth rate of -17.92%.
- You can view the full Natural Resources Partners L.P Ratings Report.