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 3 stocks with substantial yields, that ultimately, we have rated "Hold."China Nepstar Chain Drugstore (NYSE: NPD) shares currently have a dividend yield of 15.10%. China Nepstar Chain Drugstore Ltd., through its subsidiaries, owns and operates a retail drugstore chain that sells a range of pharmaceutical and other healthcare products in the People's Republic of China. The company has a P/E ratio of 28.43. The average volume for China Nepstar Chain Drugstore has been 135,800 shares per day over the past 30 days. China Nepstar Chain Drugstore has a market cap of $196.5 million and is part of the retail industry. Shares are up 8.2% year-to-date as of the close of trading on Friday. TheStreet Ratings rates China Nepstar Chain Drugstore 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 solid stock price performance. However, as a counter to these strengths, we find that the growth in the company's net income has been quite unimpressive. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 8.4%. Since the same quarter one year prior, revenues rose by 10.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- NPD 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 1.24, which illustrates the ability to avoid short-term cash problems.
- 42.40% is the gross profit margin for CHINA NEPSTAR CHAIN DRUG-ADS which we consider to be strong. Regardless of NPD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -0.67% trails the industry average.
- 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. In comparison to the other companies in the Food & Staples Retailing industry and the overall market, CHINA NEPSTAR CHAIN DRUG-ADS's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- 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 Food & Staples Retailing industry. The net income has significantly decreased by 358.2% when compared to the same quarter one year ago, falling from $0.29 million to -$0.76 million.
- You can view the full China Nepstar Chain Drugstore Ratings Report.
- The gross profit margin for NATURAL RESOURCE PARTNERS LP is currently very high, coming in at 94.45%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 56.79% significantly outperformed against the industry average.
- NRP, with its decline in revenue, underperformed when compared the industry average of 2.4%. Since the same quarter one year prior, revenues fell by 19.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Looking at the price performance of NRP's shares over the past 12 months, there is not much good news to report: the stock is down 30.66%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- NATURAL RESOURCE PARTNERS LP's earnings per share declined by 25.0% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, NATURAL RESOURCE PARTNERS LP reported lower earnings of $1.54 versus $1.97 in the prior year. For the next year, the market is expecting a contraction of 20.1% in earnings ($1.23 versus $1.54).
- You can view the full Natural Resources Partners L.P Ratings Report.
- VNR's very impressive revenue growth greatly exceeded the industry average of 2.4%. Since the same quarter one year prior, revenues leaped by 272.6%. 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 104.5% when compared to the same quarter one year prior, rising from -$68.73 million to $3.12 million.
- 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. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- VNR's debt-to-equity ratio of 0.74 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. Despite the fact that VNR's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.65 is low and demonstrates weak liquidity.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, VANGUARD NATURAL RESOURCES's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Vanguard Natural Resources Ratings Report.
- Our dividend calendar.