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." Enterprise Products Partners (NYSE: EPD) shares currently have a dividend yield of 4.30%. Enterprise Products Partners L.P. provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. The company has a P/E ratio of 23.08. The average volume for Enterprise Products Partners has been 1,122,600 shares per day over the past 30 days. Enterprise Products Partners has a market cap of $60.8 billion and is part of the energy industry. Shares are up 0.1% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Enterprise Products Partners as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, growth in earnings per share, increase in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 1.4%. Since the same quarter one year prior, revenues rose by 18.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- ENTERPRISE PRODS PRTNRS -LP has improved earnings per share by 10.3% 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 year. We feel that this trend should continue. During the past fiscal year, ENTERPRISE PRODS PRTNRS -LP increased its bottom line by earning $2.82 versus $2.71 in the prior year. This year, the market expects an improvement in earnings ($3.00 versus $2.82).
- The net income growth from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income increased by 13.5% when compared to the same quarter one year prior, going from $615.50 million to $698.90 million.
- Net operating cash flow has increased to $1,499.30 million or 17.58% when compared to the same quarter last year. In addition, ENTERPRISE PRODS PRTNRS -LP has also vastly surpassed the industry average cash flow growth rate of -44.35%.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- You can view the full Enterprise Products Partners Ratings Report.