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." Permian Basin Royalty (NYSE: PBT) shares currently have a dividend yield of 8.10%. Permian Basin Royalty Trust owns overriding royalty interests in various oil and gas properties in the United States. The company has a P/E ratio of 17.65. The average volume for Permian Basin Royalty has been 144,600 shares per day over the past 30 days. Permian Basin Royalty has a market cap of $691.2 million and is part of the energy industry. Shares are up 18.4% year to date as of the close of trading on Monday. TheStreet Ratings rates Permian Basin Royalty as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in net income. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 5.5%. Since the same quarter one year prior, revenues rose by 38.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- PBT 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 the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.16, which illustrates the ability to avoid short-term cash problems.
- 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- PERMIAN BASIN ROYALTY TRUST has improved earnings per share by 42.1% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, PERMIAN BASIN ROYALTY TRUST reported lower earnings of $1.16 versus $1.36 in the prior year.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, PERMIAN BASIN ROYALTY TRUST's return on equity significantly exceeds that of both the industry average and the S&P 500.
- You can view the full Permian Basin Royalty Ratings Report.
- The strong earnings growth this company has enjoyed -- up -- has apparently played a role in driving up its share price by a solid 35.67%. In addition, the rise in the general market has likely contributed to this stock's strong performance during this past year.Although OAK had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
- OAKTREE CAPITAL GROUP LLC has improved earnings per share by 33.3% 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 year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, OAKTREE CAPITAL GROUP LLC turned its bottom line around by earning $3.56 versus -$2.82 in the prior year. This year, the market expects an improvement in earnings ($5.89 versus $3.56).
- The gross profit margin for OAKTREE CAPITAL GROUP LLC is rather high; currently it is at 53.56%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 9.39% trails the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 8.6%. Since the same quarter one year prior, revenues slightly dropped by 7.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full Oaktree Capital Group Ratings Report.
- MSB 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. To add to this, MSB has a quick ratio of 1.63, which demonstrates the ability of the company to cover short-term liquidity needs.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, MESABI TRUST's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for MESABI TRUST is currently very high, coming in at 100.00%. MSB has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, MSB's net profit margin of 97.33% significantly outperformed against the industry.
- 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 Metals & Mining industry. The net income has significantly decreased by 29.9% when compared to the same quarter one year ago, falling from $10.87 million to $7.63 million.
- Net operating cash flow has decreased to $5.94 million or 31.79% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, MESABI TRUST has marginally lower results.
- You can view the full Mesabi Ratings Report.
- Our dividend calendar.