Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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."Atlas Resource Partners (NYSE: ARP) shares currently have a dividend yield of 10.40%. Atlas Resource Partners, L.P. engages in the production of natural gas, crude oil, and natural gas liquids in basins across the United States. The company operates through three segments: Gas and Oil Production, Well Construction and Completion, and Other Partnership Management. The average volume for Atlas Resource Partners has been 356,700 shares per day over the past 30 days. Atlas Resource Partners has a market cap of $1.3 billion and is part of the energy industry. Shares are up 7.1% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Atlas Resource Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 293.9% when compared to the same quarter one year ago, falling from -$10.08 million to -$39.70 million.
- In its most recent trading session, ARP has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
- ARP's debt-to-equity ratio of 0.81 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 0.41 is very low and demonstrates very weak liquidity.
- ATLAS RESOURCE PARTNERS 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 year, the market expects an improvement in earnings (-$0.24 versus -$1.63).
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ATLAS RESOURCE PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Atlas Resource Partners Ratings Report.
- The debt-to-equity ratio is very high at 45.89 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, LGP has a quick ratio of 0.52, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- The gross profit margin for LEHIGH GAS PARTNERS LP is currently extremely low, coming in at 3.51%. Regardless of LGP'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 1.00% trails the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 5.7%. Since the same quarter one year prior, revenues slightly dropped by 3.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- LEHIGH GAS PARTNERS LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.22 versus $0.23).
- 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 1194.2% when compared to the same quarter one year prior, rising from -$0.45 million to $4.92 million.
- You can view the full Lehigh Gas Partners Ratings Report.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, STB has underperformed the S&P 500 Index, declining 6.28% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Road & Rail industry. The net income has decreased by 15.5% when compared to the same quarter one year ago, dropping from -$7.61 million to -$8.79 million.
- 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 Road & Rail industry and the overall market, STUDENT TRANSPORTATION INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to -$21.11 million or 30.16% 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.
- The gross profit margin for STUDENT TRANSPORTATION INC is currently extremely low, coming in at 9.36%. Regardless of STB's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, STB's net profit margin of -12.02% significantly underperformed when compared to the industry average.
- You can view the full Student Transportation Ratings Report.
- Our dividend calendar.