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." Atlas Resource Partners (NYSE: ARP) shares currently have a dividend yield of 11.10%. Atlas Resource Partners, L.P. engages in the production of natural gas, crude oil, and natural gas liquids in basins across the United States. The company operates through three segments: Gas and Oil Production, Well Construction and Completion, and Other Partnership Management. The average volume for Atlas Resource Partners has been 346,800 shares per day over the past 30 days. Atlas Resource Partners has a market cap of $1.2 billion and is part of the energy industry. Shares are down 9.6% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Atlas Resource Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk and generally disappointing historical performance in the stock itself. 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 293.9% when compared to the same quarter one year ago, falling from -$10.08 million to -$39.70 million.
- The share price of ATLAS RESOURCE PARTNERS LP has not done very well: it is down 7.27% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- ARP's debt-to-equity ratio of 0.81 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. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.41 is very low and demonstrates very weak liquidity.
- ATLAS RESOURCE PARTNERS LP has experienced 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 (-$0.24 versus -$1.63).
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ATLAS RESOURCE PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Atlas Resource Partners Ratings Report.
- ATLANTIC POWER CORP has experienced 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 earnings per share over the past two years. During the past fiscal year, ATLANTIC POWER CORP reported poor results of -$1.10 versus -$0.39 in the prior year.
- 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 Independent Power Producers & Energy Traders industry. The net income has significantly decreased by 452.0% when compared to the same quarter one year ago, falling from -$7.50 million to -$41.40 million.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 72.37%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 54.54% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The debt-to-equity ratio is very high at 3.02 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, AT's quick ratio is somewhat strong at 1.05, demonstrating the ability to handle short-term liquidity needs.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Independent Power Producers & Energy Traders industry and the overall market, ATLANTIC POWER CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Atlantic Power Corporation Ratings Report.
- ACRE has underperformed the S&P 500 Index, declining 21.11% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, ARES COMMERCIAL REAL ESTATE underperformed against that of the industry average and is significantly less than that of the S&P 500.
- 43.68% is the gross profit margin for ARES COMMERCIAL REAL ESTATE which we consider to be strong. It has increased significantly from the same period last year. Along with this, the net profit margin of 50.63% significantly outperformed against the industry average.
- Net operating cash flow has significantly increased by 221.14% to $3.27 million when compared to the same quarter last year. In addition, ARES COMMERCIAL REAL ESTATE has also vastly surpassed the industry average cash flow growth rate of 8.47%.
- ARES COMMERCIAL REAL ESTATE reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($0.86 versus $0.10).
- You can view the full Ares Commercial Real Estate Ratings Report.
- Our dividend calendar.