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 "Hold." Suburban Propane Partners (NYSE: SPH) shares currently have a dividend yield of 7.70%. Suburban Propane Partners, L.P., through its subsidiaries, is engaged in the retail marketing and distribution of propane, fuel oil, and refined fuels. The company has a P/E ratio of 33.78. The average volume for Suburban Propane Partners has been 162,700 shares per day over the past 30 days. Suburban Propane Partners has a market cap of $2.7 billion and is part of the utilities industry. Shares are down 5.5% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Suburban Propane Partners as a hold. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, poor profit margins and unimpressive growth in net income. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 15.0%. Since the same quarter one year prior, revenues slightly increased by 7.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- SUBURBAN PROPANE PRTNRS -LP has improved earnings per share by 18.6% 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. This trend suggests that the performance of the business is improving. During the past fiscal year, SUBURBAN PROPANE PRTNRS -LP increased its bottom line by earning $1.44 versus $0.48 in the prior year. This year, the market expects an improvement in earnings ($2.16 versus $1.44).
- Even though the current debt-to-equity ratio is 1.10, it is still below the industry average, suggesting that this level of debt is acceptable within the Gas Utilities industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.86 is weak.
- The gross profit margin for SUBURBAN PROPANE PRTNRS -LP is currently extremely low, coming in at 6.27%. Regardless of SPH's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, SPH's net profit margin of -25.90% significantly underperformed when compared to the industry average.
- Net operating cash flow has significantly decreased to $13.84 million or 63.31% 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 Suburban Propane Partners Ratings Report.