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." Atlas Energy (NYSE: ATLS) shares currently have a dividend yield of 4.50%. Atlas Energy, L.P. engages in the development and production of natural gas, crude oil, and natural gas liquids in basins across the United States. It also sponsors and manages tax-advantaged natural gas and oil investment partnerships. The average volume for Atlas Energy has been 357,100 shares per day over the past 30 days. Atlas Energy has a market cap of $2.1 billion and is part of the utilities industry. Shares are down 9.4% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Atlas Energy as a hold. Among the primary strengths of the company is its robust revenue growth -- not just in the most recent periods but in previous quarters as well. At the same time, however, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity. Highlights from the ratings report include:
- ATLS's very impressive revenue growth greatly exceeded the industry average of 3.8%. Since the same quarter one year prior, revenues leaped by 86.3%. 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.
- ATLAS ENERGY 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 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, ATLAS ENERGY LP swung to a loss, reporting -$1.02 versus $1.00 in the prior year. This year, the market expects an improvement in earnings ($2.04 versus -$1.02).
- In its most recent trading session, ATLS 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. 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.
- The gross profit margin for ATLAS ENERGY LP is rather low; currently it is at 22.03%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -4.00% trails that of the industry average.
- Net operating cash flow has significantly decreased to $24.82 million or 52.81% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, ATLAS ENERGY LP has marginally lower results.
- You can view the full Atlas Energy Ratings Report.