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."Town Sports International Holdings (NASDAQ: CLUB) shares currently have a dividend yield of 7.30%. Town Sports International Holdings, Inc., together with its subsidiaries, owns and operates fitness clubs in the northeast and mid-Atlantic regions of the United States. The company has a P/E ratio of 17.50. The average volume for Town Sports International Holdings has been 96,700 shares per day over the past 30 days. Town Sports International Holdings has a market cap of $210.9 million and is part of the leisure industry. Shares are down 40.7% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Town Sports International Holdings as a hold. Among the primary strengths of the company is its generally strong cash flow from operations. At the same time, however, 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:
- Net operating cash flow has slightly increased to $16.91 million or 4.97% when compared to the same quarter last year. In addition, TOWN SPORTS INTL HOLDINGS has also vastly surpassed the industry average cash flow growth rate of -107.22%.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 5.2%. Since the same quarter one year prior, revenues slightly dropped by 0.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- TOWN SPORTS INTL HOLDINGS's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. However, the consensus estimates suggest that there will be an upward trend in the coming year. During the past fiscal year, TOWN SPORTS INTL HOLDINGS's EPS of $0.50 remained unchanged from the prior years' EPS of $0.50. This year, the market expects an improvement in earnings ($0.62 versus $0.50).
- 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 Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 53.4% when compared to the same quarter one year ago, falling from -$0.45 million to -$0.70 million.
- The gross profit margin for TOWN SPORTS INTL HOLDINGS is rather low; currently it is at 21.89%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -0.61% is significantly below that of the industry average.
- You can view the full Town Sports International Holdings Ratings Report.
- The gross profit margin for SHIP FINANCE INTL LTD is rather high; currently it is at 59.98%. Regardless of SFL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SFL's net profit margin of 19.77% significantly outperformed against the industry.
- 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- SFL, with its decline in revenue, slightly underperformed the industry average of 3.3%. Since the same quarter one year prior, revenues slightly dropped by 8.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The debt-to-equity ratio of 1.49 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, SFL has a quick ratio of 0.50, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, SHIP FINANCE INTL LTD's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full Ship Finance International Ratings Report.
- The revenue growth greatly exceeded the industry average of 3.3%. Since the same quarter one year prior, revenues rose by 38.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has significantly increased by 256.66% to $52.36 million when compared to the same quarter last year. In addition, MEMORIAL PRODUCTION PRTRS LP has also vastly surpassed the industry average cash flow growth rate of -51.05%.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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, implying reduced upside potential.
- The debt-to-equity ratio of 1.15 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with this, the company manages to maintain a quick ratio of 0.47, which clearly demonstrates the inability to cover short-term cash needs.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, MEMORIAL PRODUCTION PRTRS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full Memorial Production Partners Ratings Report.
- Our dividend calendar.