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." Crestwood Midstream Partners (NYSE: CMLP) shares currently have a dividend yield of 8.20%. Crestwood Midstream Partners LP primarily engages in the gathering, processing, treating, compressing, transporting, and selling natural gas in the United States. The company operates in four segments: Barnett, Fayetteville, Granite Wash, and Marcellus. The company has a P/E ratio of 113.09. The average volume for Crestwood Midstream Partners has been 120,900 shares per day over the past 30 days. Crestwood Midstream Partners has a market cap of $1.3 billion and is part of the energy industry. Shares are up 15.6% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Crestwood Midstream Partners as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 6.4%. 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 -15.63%.
- 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).
- The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 28.4% when compared to the same quarter one year ago, falling from $6.80 million to $4.87 million.
- You can view the full Crestwood Midstream Partners Ratings Report.