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." Great Northern Iron Ore (NYSE: GNI) shares currently have a dividend yield of 13.90%. Great Northern Iron Ore Properties, a conventional nonvoting trust, owns and leases mineral and non-mineral properties on the Mesabi Iron Range in northeastern Minnesota. The company has a P/E ratio of 6.94. The average volume for Great Northern Iron Ore has been 13,800 shares per day over the past 30 days. Great Northern Iron Ore has a market cap of $107.8 million and is part of the metals & mining industry. Shares are up 6.9% year to date as of the close of trading on Friday. TheStreet Ratings rates Great Northern Iron Ore as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share. Highlights from the ratings report include:
- GNI has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 2.92, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for GREAT NORTHERN IRON ORE PPTY is currently very high, coming in at 79.90%. Regardless of GNI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GNI's net profit margin of 79.89% significantly outperformed against the industry.
- The revenue fell significantly faster than the industry average of 5.2%. Since the same quarter one year prior, revenues fell by 31.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, GREAT NORTHERN IRON ORE PPTY's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The share price of GREAT NORTHERN IRON ORE PPTY has not done very well: it is down 10.15% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full Great Northern Iron Ore Ratings Report.
- The revenue growth greatly exceeded the industry average of 6.6%. Since the same quarter one year prior, revenues rose by 28.7%. 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.
- Net operating cash flow has increased to $23.50 million or 35.17% when compared to the same quarter last year. In addition, CRESTWOOD MIDSTREAM PTNRS LP has also vastly surpassed the industry average cash flow growth rate of -15.84%.
- 47.95% is the gross profit margin for CRESTWOOD MIDSTREAM PTNRS LP which we consider to be strong. Regardless of CMLP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CMLP's net profit margin of 6.84% compares favorably to the industry average.
- CRESTWOOD MIDSTREAM PTNRS 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. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, CRESTWOOD MIDSTREAM PTNRS LP reported lower earnings of $0.37 versus $1.00 in the prior year. This year, the market expects an improvement in earnings ($0.44 versus $0.37).
- 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. 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.
- You can view the full Crestwood Midstream Partners Ratings Report.
- Since the same quarter one year prior, revenues leaped by 92.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Compared to where it was trading one year ago, TCRD is up 9.73% to its most recent closing price of 15.45. Looking ahead, although the push and pull of a bull or bear market could certainly alter the outcome, our view is that this stock's positive fundamentals give it good potential for further appreciation.
- The net income increased by 161.7% when compared to the same quarter one year prior, rising from $5.97 million to $15.62 million.
- The gross profit margin for THL CREDIT INC is rather high; currently it is at 68.10%. It has increased from the same quarter the previous year.
- THL CREDIT INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, THL CREDIT INC increased its bottom line by earning $1.26 versus $1.19 in the prior year. This year, the market expects an improvement in earnings ($1.41 versus $1.26).
- You can view the full THL Credit Ratings Report.
- Our dividend calendar.