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 "Hold." Knightsbridge Tankers (NASDAQ: VLCCF) shares currently have a dividend yield of 7.50%. Knightsbridge Tankers Limited, a shipping company, engages in the seaborne transportation of crude oil and dry bulk cargoes worldwide. As of December 31, 2012, it owned and operated one very large crude carrier and four Capesize dry bulk carriers. The average volume for Knightsbridge Tankers has been 426,500 shares per day over the past 30 days. Knightsbridge Tankers has a market cap of $229.1 million and is part of the transportation industry. Shares are up 2.5% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Knightsbridge Tankers as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- 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 101.8% when compared to the same quarter one year prior, rising from -$57.01 million to $1.01 million.
- The current debt-to-equity ratio, 0.37, is low and is below the industry average, implying that there has been successful management of debt levels.
- The gross profit margin for KNIGHTSBRIDGE TANKERS LTD is rather high; currently it is at 57.25%. Regardless of VLCCF's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VLCCF's net profit margin of 10.13% compares favorably to the industry average.
- Net operating cash flow has significantly decreased to $3.64 million or 64.98% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, KNIGHTSBRIDGE TANKERS LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Knightsbridge Tankers Ratings Report.
- The gross profit margin for SHIP FINANCE INTL LTD is rather high; currently it is at 59.98%. Regardless of SFL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SFL's net profit margin of 19.77% significantly outperformed against the industry.
- SFL, with its decline in revenue, slightly underperformed the industry average of 5.7%. Since the same quarter one year prior, revenues slightly dropped by 8.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- SHIP FINANCE INTL LTD 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, SHIP FINANCE INTL LTD increased its bottom line by earning $2.26 versus $1.61 in the prior year. For the next year, the market is expecting a contraction of 53.1% in earnings ($1.06 versus $2.26).
- The debt-to-equity ratio of 1.49 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, SFL has a quick ratio of 0.50, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, SHIP FINANCE INTL LTD's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full Ship Finance International Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 38.5% when compared to the same quarter one year prior, rising from $14.33 million to $19.84 million.
- 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. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, BLACKROCK KELSO CAPITAL CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- BKCC has underperformed the S&P 500 Index, declining 8.97% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Net operating cash flow has significantly decreased to -$110.23 million or 247.73% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full BlackRock Kelso Capital Corporation Ratings Report.
- Compared to other companies in the Real Estate Management & Development industry and the overall market, ALTO PALERMO SA's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The revenue growth greatly exceeded the industry average of 36.6%. Since the same quarter one year prior, revenues slightly increased by 3.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Powered by its strong earnings growth of 130.76% and other important driving factors, this stock has surged by 40.79% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- Even though the current debt-to-equity ratio is 1.19, it is still below the industry average, suggesting that this level of debt is acceptable within the Real Estate Management & Development industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.10 is sturdy.
- Net operating cash flow has declined marginally to $45.56 million or 3.97% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Alto Palermo Ratings Report.
- Our dividend calendar.