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 "Sell." Nordic American Tankers (NYSE: NAT) shares currently have a dividend yield of 4.60%. Nordic American Tankers Limited, a tanker company, engages in acquiring and chartering double-hull tankers. Its fleet consists of 20 double-hull Suezmax tankers. The company was founded in 1995 and is headquartered in Hamilton, Bermuda. The average volume for Nordic American Tankers has been 1,921,700 shares per day over the past 30 days. Nordic American Tankers has a market cap of $778.9 million and is part of the transportation industry. Shares are up 5.6% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Nordic American Tankers as a sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins and weak operating cash flow. Highlights from the ratings report include:
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NORDIC AMERICAN TANKERS LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for NORDIC AMERICAN TANKERS LTD is currently extremely low, coming in at 8.94%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, NAT's net profit margin of -30.48% significantly underperformed when compared to the industry average.
- Net operating cash flow has decreased to -$4.10 million or 31.72% when compared to the same quarter last year. Despite a decrease in cash flow NORDIC AMERICAN TANKERS LTD is still fairing well by exceeding its industry average cash flow growth rate of -48.26%.
- NORDIC AMERICAN TANKERS LTD has improved earnings per share by 34.1% 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, NORDIC AMERICAN TANKERS LTD continued to lose money by earning -$1.38 versus -$1.53 in the prior year. For the next year, the market is expecting a contraction of 11.9% in earnings (-$1.55 versus -$1.38).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Oil, Gas & Consumable Fuels industry average. The net income increased by 17.6% when compared to the same quarter one year prior, going from -$23.35 million to -$19.24 million.
- You can view the full Nordic American Tankers Ratings Report.