Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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 "Hold."Suburban Propane Partners (NYSE: SPH) shares currently have a dividend yield of 7.50%. Suburban Propane Partners, L.P., through its subsidiaries, engages in the retail marketing and distribution of propane, fuel oil, and refined fuels. The company has a P/E ratio of 63.93. The average volume for Suburban Propane Partners has been 168,400 shares per day over the past 30 days. Suburban Propane Partners has a market cap of $2.8 billion and is part of the utilities industry. Shares are up 20.1% year to date as of the close of trading on Monday. TheStreet Ratings rates Suburban Propane Partners as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, disappointing return on equity and poor profit margins. Highlights from the ratings report include:
- SPH's very impressive revenue growth greatly exceeded the industry average of 21.1%. Since the same quarter one year prior, revenues leaped by 61.9%. 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.
- Net operating cash flow has increased to $66.51 million or 18.33% when compared to the same quarter last year. In addition, SUBURBAN PROPANE PRTNRS -LP has also modestly surpassed the industry average cash flow growth rate of 13.54%.
- Even though the current debt-to-equity ratio is 1.14, it is still below the industry average, suggesting that this level of debt is acceptable within the Gas Utilities industry. Despite the fact that SPH's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.15 is high and demonstrates strong liquidity.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Gas Utilities industry and the overall market, SUBURBAN PROPANE PRTNRS -LP's return on equity is below that of both the industry average and the S&P 500.
- The gross profit margin for SUBURBAN PROPANE PRTNRS -LP is currently extremely low, coming in at 8.36%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -15.53% is significantly below that of the industry average.
- You can view the full Suburban Propane Partners Ratings Report.
- Since the same quarter one year prior, revenues slightly increased by 6.8%. 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 1477.57% to $2.27 million when compared to the same quarter last year.
- COMPASS DIVERSIFIED HOLDINGS 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, COMPASS DIVERSIFIED HOLDINGS continued to lose money by earning -$0.05 versus -$0.81 in the prior year. This year, the market expects an improvement in earnings ($1.58 versus -$0.05).
- The net income has significantly decreased by 848.7% when compared to the same quarter one year ago, falling from $0.08 million to -$0.57 million.
- The gross profit margin for COMPASS DIVERSIFIED HOLDINGS is currently lower than what is desirable, coming in at 33.13%. It has decreased from the same quarter the previous year.
- You can view the full Compass Diversified Holdings Shares of Bene Ratings Report.
- UAN's revenue growth has slightly outpaced the industry average of 2.7%. Since the same quarter one year prior, revenues slightly increased by 9.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- UAN's debt-to-equity ratio is very low at 0.27 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.70, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for CVR PARTNERS LP is rather high; currently it is at 54.98%. Regardless of UAN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, UAN's net profit margin of 39.89% significantly outperformed against the industry.
- UAN's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 30.13%, which is also worse than the performance of the S&P 500 Index. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- Net operating cash flow has decreased to $17.14 million or 34.21% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full CVR Partners Ratings Report.
- Our dividend calendar.