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 "Buy." Global Partners (NYSE: GLP) shares currently have a dividend yield of 7.10%. Global Partners LP distributes gasoline, distillates, residual oil, and renewable fuels to wholesalers, retailers, and commercial customers in the New England states and New York. It operates in three segments: Wholesale, Gasoline Distribution and Station Operations, and Commercial. The company has a P/E ratio of 17.74. The average volume for Global Partners has been 66,500 shares per day over the past 30 days. Global Partners has a market cap of $905.2 million and is part of the wholesale industry. Shares are up 28.2% year to date as of the close of trading on Wednesday. TheStreet Ratings rates Global Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. 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 rose by 21.9%. 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.
- Compared to its closing price of one year ago, GLP's share price has jumped by 36.16%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- GLOBAL PARTNERS LP 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, GLOBAL PARTNERS LP increased its bottom line by earning $1.65 versus $0.88 in the prior year. This year, the market expects an improvement in earnings ($1.75 versus $1.65).
- 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, GLOBAL PARTNERS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- The gross profit margin for GLOBAL PARTNERS LP is currently extremely low, coming in at 2.34%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.18% trails that of the industry average.
- You can view the full Global Partners Ratings Report.