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 which could 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 "Sell." Golar LNG Partners (NASDAQ: GMLP) shares currently have a dividend yield of 7.10%. Golar LNG Partners LP owns and operates floating storage regasification units (FSRUs) and liquefied natural gas (LNG) carriers primarily in the Brazil, the United Arab Emirates, and Indonesia. As of December 5, 2013, its fleet consisted of three FSRUs and two LNG carriers. The company has a P/E ratio of 14.14. The average volume for Golar LNG Partners has been 223,600 shares per day over the past 30 days. Golar LNG Partners has a market cap of $1.3 billion and is part of the transportation industry. Shares are down 2.7% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Golar LNG Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- The debt-to-equity ratio is very high at 2.10 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
- Net operating cash flow has decreased to $50.41 million or 41.58% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- GMLP has underperformed the S&P 500 Index, declining 7.20% 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.
- 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. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, GOLAR LNG PARTNERS LP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- GOLAR LNG PARTNERS LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, GOLAR LNG PARTNERS LP reported lower earnings of $2.50 versus $2.67 in the prior year.
- You can view the full Golar LNG Partners Ratings Report.