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." Diana Containerships (NASDAQ: DCIX) shares currently have a dividend yield of 14.50%. Diana Containerships Inc., a shipping company, owns and operates containerships. It is involved in the seaborne transportation activities. As of August 23, 2013, its fleet consisted of nine container vessels comprising one Post-Panamax and eight Panamax vessels. The average volume for Diana Containerships has been 260,700 shares per day over the past 30 days. Diana Containerships has a market cap of $141.0 million and is part of the transportation industry. Shares are up 2.5% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Diana Containerships as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 11.7%. Since the same quarter one year prior, revenues slightly increased by 5.9%. 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 $9.67 million or 40.22% when compared to the same quarter last year. In addition, DIANA CONTAINERSHIPS INC has also vastly surpassed the industry average cash flow growth rate of -84.33%.
- The gross profit margin for DIANA CONTAINERSHIPS INC is rather high; currently it is at 51.68%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -127.62% is in-line with 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 Marine industry. The net income has significantly decreased by 7400.4% when compared to the same quarter one year ago, falling from $0.27 million to -$19.78 million.
- 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 Marine industry and the overall market, DIANA CONTAINERSHIPS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Diana Containerships Ratings Report.
- Net operating cash flow has significantly increased by 102.72% to $2.40 million when compared to the same quarter last year. In addition, NGP CAPITAL RESOURCES CO has also vastly surpassed the industry average cash flow growth rate of -112.87%.
- The gross profit margin for NGP CAPITAL RESOURCES CO is rather high; currently it is at 55.30%. Regardless of NGPC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NGPC's net profit margin of 84.66% significantly outperformed against the industry.
- Despite the weak revenue results, NGPC has outperformed against the industry average of 16.9%. Since the same quarter one year prior, revenues slightly dropped by 5.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Capital Markets industry. The net income has significantly decreased by 58.7% when compared to the same quarter one year ago, falling from $12.23 million to $5.05 million.
- 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. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, NGP CAPITAL RESOURCES CO underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full NGP Capital Resources Company 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 3.3%. 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 32.63%, 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 20.8% in earnings ($1.22 versus $1.54).
- You can view the full Natural Resources Partners L.P Ratings Report.
- Our dividend calendar.