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 5 stocks with substantial yields, that ultimately, we have rated "Hold." QR Energy (NYSE: QRE) shares currently have a dividend yield of 11.90%. QR Energy, LP, through its subsidiary, QRE Operating, LLC, engages in the acquisition, exploitation, development, and production of oil and natural gas properties in the United States. The average volume for QR Energy has been 267,100 shares per day over the past 30 days. QR Energy has a market cap of $957.2 million and is part of the energy industry. Shares are down 1.5% year to date as of the close of trading on Wednesday. TheStreet Ratings rates QR Energy as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, a generally disappointing performance in the stock itself and generally higher debt management risk. 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 38.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 51.4% when compared to the same quarter one year prior, rising from -$44.66 million to -$21.72 million.
- QR ENERGY LP reported significant earnings per share improvement 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, QR ENERGY LP swung to a loss, reporting -$0.15 versus $0.35 in the prior year. This year, the market expects an improvement in earnings ($1.18 versus -$0.15).
- The debt-to-equity ratio of 1.39 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, QRE's quick ratio is somewhat strong at 1.07, demonstrating the ability to handle short-term liquidity needs.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, QR ENERGY LP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full QR Energy Ratings Report.