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." Northern Tier Energy (NYSE: NTI) shares currently have a dividend yield of 6.50%. Northern Tier Energy LP operates as an independent downstream energy company with refining, retail, and pipeline operations in the United States. The company operates through two segments, Refining and Retail. The company has a P/E ratio of 7.82. The average volume for Northern Tier Energy has been 683,200 shares per day over the past 30 days. Northern Tier Energy has a market cap of $2.3 billion and is part of the energy industry. Shares are up 2% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Northern Tier Energy as a hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NORTHERN TIER ENERGY LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The revenue growth came in higher than the industry average of 2.4%. Since the same quarter one year prior, revenues rose by 13.8%. 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.
- NTI's debt-to-equity ratio of 0.69 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. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.79 is weak.
- The gross profit margin for NORTHERN TIER ENERGY LP is currently extremely low, coming in at 3.74%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 2.01% trails that of the industry average.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 55.5% when compared to the same quarter one year ago, falling from $61.10 million to $27.20 million.
- You can view the full Northern Tier Energy Ratings Report.
- LINE's very impressive revenue growth greatly exceeded the industry average of 2.4%. Since the same quarter one year prior, revenues leaped by 923.3%. 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 93.0% when compared to the same quarter one year prior, rising from -$430.01 million to -$30.06 million.
- LINN ENERGY LLC 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. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LINN ENERGY LLC swung to a loss, reporting -$1.86 versus $2.21 in the prior year. This year, the market expects an improvement in earnings ($1.07 versus -$1.86).
- LINE has underperformed the S&P 500 Index, declining 10.99% 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.
- Currently the debt-to-equity ratio of 1.61 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.46, which clearly demonstrates the inability to cover short-term cash needs.
- You can view the full Linn Energy Ratings Report.
- PBF, with its decline in revenue, slightly underperformed the industry average of 2.4%. Since the same quarter one year prior, revenues slightly dropped by 2.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- PBF ENERGY INC 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 reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, PBF ENERGY INC reported lower earnings of $1.35 versus $37.61 in the prior year. This year, the market expects an improvement in earnings ($3.06 versus $1.35).
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 88.2% when compared to the same quarter one year ago, falling from $264.26 million to $31.16 million.
- Net operating cash flow has significantly decreased to $148.75 million or 56.71% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, PBF ENERGY INC has marginally lower results.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 34.48%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 93.90% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- You can view the full PBF Energy Inc Class A Ratings Report.
- Our dividend calendar.