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." Southcross Energy Partners (NYSE: SXE) shares currently have a dividend yield of 9.00%. Southcross Energy Partners, L.P., a midstream natural gas company, provides natural gas gathering, processing, treating, compression, and transportation services in the United States. It also offers natural gas liquid (NGL) fractionation and transportation services. The company has a P/E ratio of 1.56. The average volume for Southcross Energy Partners has been 147,500 shares per day over the past 30 days. Southcross Energy Partners has a market cap of $219.1 million and is part of the utilities industry. Shares are down 2% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Southcross Energy Partners as a sell. Among the areas we feel are negative, one of the most important has been poor profit margins. Highlights from the ratings report include:
- The gross profit margin for SOUTHCROSS ENERGY PRTNRS LP is currently extremely low, coming in at 5.66%. Regardless of SXE'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 -2.53% trails the industry average.
- The change in net income 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 has decreased by 0.7% when compared to the same quarter one year ago, dropping from -$4.04 million to -$4.07 million.
- SXE's debt-to-equity ratio of 0.80 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. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.87 is weak.
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, SOUTHCROSS ENERGY PRTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- SXE's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 28.26%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter.
- You can view the full Southcross Energy Partners Ratings Report.