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.
- Net operating cash flow has increased to -$12.61 million or 25.68% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -4.41%.
- The debt-to-equity ratio is somewhat low, currently at 0.82, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.36 is very weak and demonstrates a lack of ability to pay short-term obligations.
- WGL, with its decline in revenue, underperformed when compared the industry average of 16.8%. Since the same quarter one year prior, revenues slightly dropped by 0.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Gas Utilities industry and the overall market on the basis of return on equity, WGL HOLDINGS INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for WGL HOLDINGS INC is currently extremely low, coming in at 8.83%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.78% trails that of the industry average.
- You can view the full WGL Holdings Ratings Report.
- EPB's revenue growth has slightly outpaced the industry average of 3.8%. Since the same quarter one year prior, revenues slightly increased by 0.3%. 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.
- 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. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, EL PASO PIPELINE PARTNERS LP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- The gross profit margin for EL PASO PIPELINE PARTNERS LP is currently very high, coming in at 72.12%. Regardless of EPB's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EPB's net profit margin of 40.66% significantly outperformed against the industry.
- EL PASO PIPELINE PARTNERS LP's earnings per share declined by 22.6% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, EL PASO PIPELINE PARTNERS LP reported lower earnings of $1.86 versus $2.15 in the prior year. For the next year, the market is expecting a contraction of 7.0% in earnings ($1.73 versus $1.86).
- The debt-to-equity ratio is very high at 2.19 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, EPB maintains a poor quick ratio of 0.81, which illustrates the inability to avoid short-term cash problems.
- You can view the full El Paso Pipeline Partners Ratings Report.
- Our dividend calendar.