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 "Buy." Kinder Morgan Energy Partners (NYSE: KMP) shares currently have a dividend yield of 6.90%. Kinder Morgan Energy Partners, L.P. operates as a pipeline transportation and energy storage company in North America. The company has a P/E ratio of 22.02. The average volume for Kinder Morgan Energy Partners has been 997,300 shares per day over the past 30 days. Kinder Morgan Energy Partners has a market cap of $24.4 billion and is part of the energy industry. Shares are down 1.5% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Kinder Morgan Energy Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 5.4%. Since the same quarter one year prior, revenues rose by 35.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- KINDER MORGAN ENERGY -LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, KINDER MORGAN ENERGY -LP turned its bottom line around by earning $1.64 versus -$0.33 in the prior year. This year, the market expects an improvement in earnings ($2.39 versus $1.64).
- 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 70.1% when compared to the same quarter one year prior, rising from $405.00 million to $689.00 million.
- Net operating cash flow has increased to $956.00 million or 18.02% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 1.10%.
- 39.07% is the gross profit margin for KINDER MORGAN ENERGY -LP which we consider to be strong. Regardless of KMP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KMP's net profit margin of 20.37% significantly outperformed against the industry.
- You can view the full Kinder Morgan Energy Partners Ratings Report.