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." Energy Transfer Partners L.P (NYSE: ETP) shares currently have a dividend yield of 7.00%. Energy Transfer Partners, L.P. engages in the natural gas midstream, and intrastate transportation and storage businesses in the United States. The company has a P/E ratio of 43.78. The average volume for Energy Transfer Partners L.P has been 1,196,500 shares per day over the past 30 days. Energy Transfer Partners L.P has a market cap of $19.1 billion and is part of the energy industry. Shares are up 18.3% year to date as of the close of trading on Monday. TheStreet Ratings rates Energy Transfer Partners L.P as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels, good cash flow from operations, increase in stock price during the past year and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated. Highlights from the ratings report include:
- ETP's very impressive revenue growth greatly exceeded the industry average of 6.5%. Since the same quarter one year prior, revenues leaped by 623.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. 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.
- 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 188.3% when compared to the same quarter one year prior, rising from $111.00 million to $320.00 million.
- Net operating cash flow has significantly increased by 135.42% to $811.00 million when compared to the same quarter last year. In addition, ENERGY TRANSFER PARTNERS -LP has also vastly surpassed the industry average cash flow growth rate of -15.85%.
- You can view the full Energy Transfer Partners L.P Ratings Report.
- Net operating cash flow has increased to $3,066.12 million or 38.68% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 18.24%.
- The debt-to-equity ratio is somewhat low, currently at 0.98, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.84 is somewhat weak and could be cause for future problems.
- HONDA MOTOR CO LTD's earnings per share declined by 25.0% in the most recent quarter compared to 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, HONDA MOTOR CO LTD increased its bottom line by earning $2.17 versus $1.41 in the prior year. This year, the market expects an improvement in earnings ($2.43 versus $2.17).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.0%. Since the same quarter one year prior, revenues slightly dropped by 6.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full Honda Motor Ratings Report.
- 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 5.1% when compared to the same quarter one year prior, going from $46.90 million to $49.30 million.
- The gross profit margin for SPECTRA ENERGY PARTNERS LP is rather high; currently it is at 62.74%. Regardless of SEP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SEP's net profit margin of 86.64% significantly outperformed against the industry.
- Compared to its closing price of one year ago, SEP's share price has jumped by 30.96%, 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.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 6.5%. Since the same quarter one year prior, revenues slightly dropped by 3.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- SPECTRA ENERGY PARTNERS LP's earnings per share declined by 14.3% 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, SPECTRA ENERGY PARTNERS LP increased its bottom line by earning $1.70 versus $1.64 in the prior year. For the next year, the market is expecting a contraction of 8.8% in earnings ($1.55 versus $1.70).
- You can view the full Spectra Energy Partners Ratings Report.
- Our dividend calendar.