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 4 stocks with substantial yields, that ultimately, we have rated "Buy." Hugoton Royalty (NYSE: HGT) shares currently have a dividend yield of 8.10%. Hugoton Royalty Trust operates as an express trust in the United States. The company holds an 80% net profits interests in certain natural gas producing working interest properties of XTO Energy Inc. XTO Energy Inc. The company has a P/E ratio of 10.16. The average volume for Hugoton Royalty has been 178,200 shares per day over the past 30 days. Hugoton Royalty has a market cap of $325.2 million and is part of the energy industry. Shares are up 10.5% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Hugoton Royalty as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in net income, expanding profit margins and notable return on equity. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results. Highlights from the ratings report include:
- HGT's very impressive revenue growth greatly exceeded the industry average of 5.6%. Since the same quarter one year prior, revenues leaped by 119.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- HGT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign.
- 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 367.6% when compared to the same quarter one year prior, rising from $2.15 million to $10.05 million.
- The gross profit margin for HUGOTON ROYALTY TRUST is currently very high, coming in at 100.00%. HGT has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, HGT's net profit margin of 95.01% significantly outperformed against the industry.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, HUGOTON ROYALTY TRUST has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- You can view the full Hugoton Royalty Ratings Report.