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." American Midstream Partners (NYSE: AMID) shares currently have a dividend yield of 7.30%. American Midstream Partners, LP engages in gathering, treating, processing, and transporting natural gas in the Gulf Coast and Southeast regions of the United States. The average volume for American Midstream Partners has been 45,600 shares per day over the past 30 days. American Midstream Partners has a market cap of $116.5 million and is part of the utilities industry. Shares are up 78.3% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates American Midstream Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow, generally high debt management risk, poor profit margins and feeble growth in its earnings per share. Highlights from the ratings report include:
- 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, AMERICAN MIDSTREAM PRTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $1.16 million or 78.98% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- AMID's debt-to-equity ratio of 0.96 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 0.18 is very low and demonstrates very weak liquidity.
- The gross profit margin for AMERICAN MIDSTREAM PRTNRS LP is currently extremely low, coming in at 7.93%. Regardless of AMID's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -3.35% trails the industry average.
- AMERICAN MIDSTREAM PRTNRS 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 company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, AMERICAN MIDSTREAM PRTNRS LP continued to lose money by earning -$0.71 versus -$1.24 in the prior year. For the next year, the market is expecting a contraction of 740.8% in earnings (-$5.97 versus -$0.71).
- You can view the full American Midstream Partners Ratings Report.
- 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. When compared to other companies in the Marine industry and the overall market, BOX SHIPS INC's return on equity is below that of both the industry average and the S&P 500.
- TEU's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 35.21%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
- TEU'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. Despite the fact that TEU's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.51 is low and demonstrates weak liquidity.
- BOX SHIPS INC has improved earnings per share by 42.9% 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, BOX SHIPS INC reported lower earnings of $0.58 versus $0.80 in the prior year.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Marine industry average. The net income increased by 32.5% when compared to the same quarter one year prior, rising from $3.66 million to $4.84 million.
- You can view the full Box Ships Ratings Report.
- The share price of TRANSALTA CORP has not done very well: it is down 16.24% 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. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- TRANSALTA 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 reported a trend of declining earnings per share over the past two years. During the past fiscal year, TRANSALTA CORP swung to a loss, reporting -$2.72 versus $1.30 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 100.0% when compared to the same quarter one year ago, falling from $64.00 million to $0.00 million.
- Even though the current debt-to-equity ratio is 1.40, it is still below the industry average, suggesting that this level of debt is acceptable within the Independent Power Producers & Energy Traders industry. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.46 is very low and demonstrates very weak liquidity.
- 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 Independent Power Producers & Energy Traders industry and the overall market on the basis of return on equity, TRANSALTA CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full TransAlta Corporation Ratings Report.
- Our dividend calendar.