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 "Buy." Regency Energy Partners (NYSE: RGP) shares currently have a dividend yield of 7.70%. Regency Energy Partners LP engages in gathering, treating, processing, compressing, and transporting natural gas and natural gas liquids (NGLs). The company operates in Gathering and Processing, Natural Gas Transportation, NGL Services, and Contract Services segments. The company has a P/E ratio of 202.25. The average volume for Regency Energy Partners has been 640,700 shares per day over the past 30 days. Regency Energy Partners has a market cap of $5.1 billion and is part of the energy industry. Shares are up 11.4% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Regency Energy Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations, increase in net income, increase in stock price during the past year and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. 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 26.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving 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 2050.0% when compared to the same quarter one year prior, rising from -$2.00 million to $39.00 million.
- Net operating cash flow has significantly increased by 136.25% to $186.00 million when compared to the same quarter last year. In addition, REGENCY ENERGY PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of 1.10%.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- REGENCY ENERGY PARTNERS 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, REGENCY ENERGY PARTNERS LP reported lower earnings of $0.13 versus $0.29 in the prior year. This year, the market expects an improvement in earnings ($0.27 versus $0.13).
- You can view the full Regency Energy Partners Ratings Report.