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.