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 5 stocks with substantial yields, that ultimately, we have rated "Buy." Access Midstream Partners (NYSE: ACMP) shares currently have a dividend yield of 4.20%. Access Midstream Partners, L.P. owns, operates, develops, and acquires natural gas, natural gas liquids and oil gathering systems, and other midstream energy assets in the United States. It focuses on natural gas and natural gas liquids gathering operations. The company has a P/E ratio of 62.01. The average volume for Access Midstream Partners has been 354,300 shares per day over the past 30 days. Access Midstream Partners has a market cap of $5.0 billion and is part of the energy industry. Shares are up 38.7% year to date as of the close of trading on Monday. TheStreet Ratings rates Access Midstream Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income, good cash flow from operations, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- ACMP's very impressive revenue growth greatly exceeded the industry average of 6.5%. Since the same quarter one year prior, revenues leaped by 65.6%. 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.
- 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 34.1% when compared to the same quarter one year prior, rising from $51.61 million to $69.21 million.
- Net operating cash flow has significantly increased by 98.67% to $137.45 million when compared to the same quarter last year. In addition, ACCESS MIDSTREAM PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of -15.85%.
- The gross profit margin for ACCESS MIDSTREAM PARTNERS LP is rather high; currently it is at 66.49%. Regardless of ACMP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ACMP's net profit margin of 27.99% significantly outperformed against the industry.
- Compared to its closing price of one year ago, ACMP's share price has jumped by 55.95%, 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.
- You can view the full Access Midstream Partners Ratings Report.