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 "Sell." Northern Tier Energy (NYSE: NTI) shares currently have a dividend yield of 14.70%. Northern Tier Energy LP operates as an independent downstream energy company with refining, retail, and pipeline operations in the United States. The company operates through two segments, Refining and Retail. The company has a P/E ratio of 13.41. The average volume for Northern Tier Energy has been 1,478,100 shares per day over the past 30 days. Northern Tier Energy has a market cap of $1.7 billion and is part of the energy industry. Shares are down 27.2% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Northern Tier Energy as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, poor profit margins and weak operating cash flow. Highlights from the ratings report include:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 74.0% when compared to the same quarter one year ago, falling from $245.60 million to $63.90 million.
- The gross profit margin for NORTHERN TIER ENERGY LP is currently extremely low, coming in at 7.24%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 6.02% trails that of the industry average.
- Net operating cash flow has decreased to $82.60 million or 46.60% 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.
- NTI's debt-to-equity ratio of 0.64 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.85 is weak.
- NORTHERN TIER ENERGY 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. This year, the market expects an improvement in earnings ($2.85 versus $2.14).
- You can view the full Northern Tier Energy Ratings Report.