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." PVR Partners (NYSE: PVR) shares currently have a dividend yield of 8.00%. PVR Partners, L.P. engages in the gathering and processing of natural gas; and management of coal and natural resource properties in the United States. The company operates in three segments: Eastern Midstream, Midcontinent Midstream, and Coal and Natural Resource Management. The average volume for PVR Partners has been 414,800 shares per day over the past 30 days. PVR Partners has a market cap of $2.8 billion and is part of the energy industry. Shares are up 2.6% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates PVR Partners as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 1.9%. Since the same quarter one year prior, revenues rose by 15.6%. 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.
- Net operating cash flow has increased to $74.09 million or 12.00% when compared to the same quarter last year. In addition, PVR PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of -48.26%.
- PVR PARTNERS LP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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, PVR PARTNERS LP swung to a loss, reporting -$1.60 versus $1.40 in the prior year. This year, the market expects an improvement in earnings ($0.29 versus -$1.60).
- In its most recent trading session, PVR has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
- 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, PVR PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full PVR Partners Ratings Report.