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 4 stocks with substantial yields, that ultimately, we have rated "Hold."North European Oil Royalty (NYSE: NRT) shares currently have a dividend yield of 9.80%. North European Oil Royalty Trust, a grantor trust, holds overriding royalty rights covering gas and oil production in concessions or leases in the Federal Republic of Germany. It holds these rights under contracts with German exploration and development subsidiaries of ExxonMobil Corp. The company has a P/E ratio of 9.83. The average volume for North European Oil Royalty has been 43,200 shares per day over the past 30 days. North European Oil Royalty has a market cap of $203.2 million and is part of the financial services industry. Shares are up 10.2% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates North European Oil Royalty as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- NRT's revenue growth has slightly outpaced the industry average of 1.4%. Since the same quarter one year prior, revenues slightly increased by 3.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- NRT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.01, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for NORTH EUROPEAN OIL RTY TR is currently very high, coming in at 100.00%. NRT has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, NRT's net profit margin of 96.90% significantly outperformed against the industry.
- NORTH EUROPEAN OIL RTY TR's earnings per share improvement from the most recent quarter was slightly positive. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, NORTH EUROPEAN OIL RTY TR reported lower earnings of $2.26 versus $2.46 in the prior year.
- NRT has underperformed the S&P 500 Index, declining 13.68% 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.
- You can view the full North European Oil Royalty Ratings Report.
- LGCY's very impressive revenue growth greatly exceeded the industry average of 1.4%. Since the same quarter one year prior, revenues leaped by 85.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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 85.5% when compared to the same quarter one year prior, rising from -$23.57 million to -$3.42 million.
- The gross profit margin for LEGACY RESERVES LP is rather high; currently it is at 53.74%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -3.23% trails the industry average.
- LEGACY RESERVES LP reported significant earnings per share improvement in the most recent quarter compared to 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, LEGACY RESERVES LP reported lower earnings of $1.43 versus $1.71 in the prior year. For the next year, the market is expecting a contraction of 62.2% in earnings ($0.54 versus $1.43).
- The debt-to-equity ratio of 1.43 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, LGCY has a quick ratio of 0.64, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full Legacy Reserves Ratings Report.
- Net operating cash flow has increased to $56.02 million or 49.17% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -0.44%.
- The gross profit margin for DYNEX CAPITAL INC is currently very high, coming in at 88.51%. Regardless of DX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DX's net profit margin of -14.64% significantly underperformed when compared to the industry average.
- The share price of DYNEX CAPITAL INC has not done very well: it is down 19.16% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.
- 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 124.1% when compared to the same quarter one year ago, falling from $19.17 million to -$4.63 million.
- You can view the full Dynex Capital Ratings Report.
- MCEP's very impressive revenue growth greatly exceeded the industry average of 1.4%. Since the same quarter one year prior, revenues leaped by 59.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, MID-CON ENERGY PARTNERS -LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- MID-CON ENERGY PARTNERS -LP reported significant earnings per share improvement 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, MID-CON ENERGY PARTNERS -LP increased its bottom line by earning $1.63 versus $0.51 in the prior year. For the next year, the market is expecting a contraction of 6.4% in earnings ($1.53 versus $1.63).
- Currently the debt-to-equity ratio of 1.68 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Even though the debt-to-equity ratio is weak, MCEP's quick ratio is somewhat strong at 1.32, demonstrating the ability to handle short-term liquidity needs.
- Net operating cash flow has declined marginally to $12.90 million or 3.72% when compared to the same quarter last year. Despite a decrease in cash flow MID-CON ENERGY PARTNERS -LP is still fairing well by exceeding its industry average cash flow growth rate of -44.35%.
- You can view the full Mid-Con Energy Partners Ratings Report.
- Our dividend calendar.