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." Tesoro Logistics (NYSE: TLLP) shares currently have a dividend yield of 4.30%. Tesoro Logistics LP engages in the ownership, operation, development, and acquisition of logistics assets related to crude oil and refined products in the United States. The company operates in two segments, Crude Oil Gathering; and Terminalling, Transportation, and Storage. The company has a P/E ratio of 30.06. The average volume for Tesoro Logistics has been 236,300 shares per day over the past 30 days. Tesoro Logistics has a market cap of $1.6 billion and is part of the energy industry. Shares are up 16.4% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Tesoro Logistics as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, robust revenue growth, good cash flow from operations, compelling growth in net income and expanding profit margins. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value. Highlights from the ratings report include:
- When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, TESORO LOGISTICS LP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- TLLP's very impressive revenue growth greatly exceeded the industry average of 5.4%. Since the same quarter one year prior, revenues leaped by 113.3%. 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.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Oil, Gas & Consumable Fuels industry average. The net income increased by 27.3% when compared to the same quarter one year prior, rising from $16.54 million to $21.05 million.
- Net operating cash flow has significantly increased by 51.45% to $37.40 million when compared to the same quarter last year. In addition, TESORO LOGISTICS LP has also vastly surpassed the industry average cash flow growth rate of 0.99%.
- The gross profit margin for TESORO LOGISTICS LP is rather high; currently it is at 57.51%. Regardless of TLLP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TLLP's net profit margin of 22.45% significantly outperformed against the industry.
- You can view the full Tesoro Logistics Ratings Report.
- The revenue growth came in higher than the industry average of 1.4%. Since the same quarter one year prior, revenues rose by 12.5%. 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.
- LORILLARD INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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, LORILLARD INC increased its bottom line by earning $2.81 versus $2.67 in the prior year. This year, the market expects an improvement in earnings ($3.17 versus $2.81).
- LO's share price has surged by 26.94% over the past year, reflecting the market's general trend, despite their weak earnings growth during the last quarter. Regarding the stock's future course, although almost any stock can fall in a broad market decline, LO should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The gross profit margin for LORILLARD INC is rather high; currently it is at 51.83%. Regardless of LO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 19.69% trails the industry average.
- Net operating cash flow has declined marginally to $553.00 million or 4.32% 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 Lorillard Ratings Report.
- Net operating cash flow has slightly increased to $2,464.00 million or 7.73% when compared to the same quarter last year. In addition, SOUTHERN CO has also modestly surpassed the industry average cash flow growth rate of 1.01%.
- SOUTHERN CO's earnings per share declined by 12.6% in the most recent quarter compared to 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, SOUTHERN CO increased its bottom line by earning $2.67 versus $2.55 in the prior year. This year, the market expects an improvement in earnings ($2.68 versus $2.67).
- 42.28% is the gross profit margin for SOUTHERN CO which we consider to be strong. Regardless of SO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SO's net profit margin of 17.32% compares favorably to the industry average.
- SO, with its decline in revenue, slightly underperformed the industry average of 1.8%. Since the same quarter one year prior, revenues slightly dropped by 0.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Even though the current debt-to-equity ratio is 1.17, it is still below the industry average, suggesting that this level of debt is acceptable within the Electric Utilities industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.40 is very low and demonstrates very weak liquidity.
- You can view the full Southern Ratings Report.
- Our dividend calendar.