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 "Buy." Tesoro Logistics (NYSE: TLLP) shares currently have a dividend yield of 4.10%. Tesoro Logistics LP engages in the ownership, operation, development, and acquisition of logistics assets related to crude oil and refined products in the United States. The company operates in two segments, Crude Oil Gathering; and Terminalling, Transportation, and Storage. The company has a P/E ratio of 37.46. The average volume for Tesoro Logistics has been 439,200 shares per day over the past 30 days. Tesoro Logistics has a market cap of $1.7 billion and is part of the energy industry. Shares are up 7% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Tesoro Logistics as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow. Highlights from the ratings report include:
- TLLP's very impressive revenue growth greatly exceeded the industry average of 1.9%. Since the same quarter one year prior, revenues leaped by 108.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- 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 32.2% when compared to the same quarter one year prior, rising from $15.70 million to $20.75 million.
- 48.84% is the gross profit margin for TESORO LOGISTICS LP which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, TLLP's net profit margin of 20.90% significantly outperformed against the industry.
- TESORO LOGISTICS LP's earnings per share declined by 27.9% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, TESORO LOGISTICS LP reported lower earnings of $1.44 versus $1.69 in the prior year. This year, the market expects an improvement in earnings ($2.47 versus $1.44).
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. 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 Tesoro Logistics Ratings Report.
- The revenue growth came in higher than the industry average of 6.8%. Since the same quarter one year prior, revenues rose by 33.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in 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 Real Estate Investment Trusts (REITs) industry. The net income increased by 81.3% when compared to the same quarter one year prior, rising from $38.43 million to $69.69 million.
- LIBERTY PROPERTY TRUST's earnings per share declined by 31.6% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, LIBERTY PROPERTY TRUST reported lower earnings of $0.70 versus $0.76 in the prior year. This year, the market expects an improvement in earnings ($0.77 versus $0.70).
- The share price of LIBERTY PROPERTY TRUST has not done very well: it is down 9.35% 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. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- The gross profit margin for LIBERTY PROPERTY TRUST is currently lower than what is desirable, coming in at 28.83%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 35.38% is above that of the industry average.
- You can view the full Liberty Property Ratings Report.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, BP PLC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 1.9%. Since the same quarter one year prior, revenues slightly dropped by 0.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Despite currently having a low debt-to-equity ratio of 0.37, it is higher than that of the industry average, inferring that management of debt levels may need to 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.
- You can view the full BP Ratings Report.
- Our dividend calendar.