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." Boardwalk Pipeline Partners (NYSE: BWP) shares currently have a dividend yield of 7.10%. Boardwalk Pipeline Partners, LP, through its subsidiaries, engages in the ownership and operation of integrated natural gas and natural gas liquids (NGLs) pipelines, and storage systems in the United States. The company also transports, stores, gathers, and processes natural gas and NGLs. The company has a P/E ratio of 22.43. The average volume for Boardwalk Pipeline Partners has been 600,700 shares per day over the past 30 days. Boardwalk Pipeline Partners has a market cap of $6.6 billion and is part of the energy industry. Shares are up 19.4% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Boardwalk Pipeline Partners as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, increase in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 6.6%. Since the same quarter one year prior, revenues slightly increased by 4.7%. 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.
- The gross profit margin for BOARDWALK PIPELINE PRTNRS-LP is rather high; currently it is at 61.79%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 24.41% significantly outperformed against the industry average.
- 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 8.3% when compared to the same quarter one year prior, going from $65.10 million to $70.50 million.
- 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. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- BOARDWALK PIPELINE PRTNRS-LP's earnings per share declined by 6.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, BOARDWALK PIPELINE PRTNRS-LP increased its bottom line by earning $1.37 versus $1.09 in the prior year. For the next year, the market is expecting a contraction of 10.2% in earnings ($1.23 versus $1.37).
- You can view the full Boardwalk Pipeline Partners Ratings Report.
- The revenue growth greatly exceeded the industry average of 6.6%. Since the same quarter one year prior, revenues rose by 24.6%. 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 significantly increased by 149.41% to $68.50 million when compared to the same quarter last year. In addition, CALUMET SPECIALTY PRODS -LP has also vastly surpassed the industry average cash flow growth rate of -15.97%.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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.
- CLMT's debt-to-equity ratio of 0.67 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.91 is weak.
- You can view the full Calumet Specialty Products Partners Ratings Report.
- RDS.A's debt-to-equity ratio is very low at 0.19 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.82 is somewhat weak and could be cause for future problems.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 6.6%. Since the same quarter one year prior, revenues slightly dropped by 3.8%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- ROYAL DUTCH SHELL PLC 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. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, ROYAL DUTCH SHELL PLC reported lower earnings of $8.50 versus $9.94 in the prior year. This year, the market expects an improvement in earnings ($15.08 versus $8.50).
- The gross profit margin for ROYAL DUTCH SHELL PLC is currently extremely low, coming in at 14.88%. Regardless of RDS.A's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.54% trails the industry average.
- You can view the full Royal Dutch Shell Ratings Report.
- Our dividend calendar.