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." Lehigh Gas Partners (NYSE: LGP) shares currently have a dividend yield of 7.40%. Lehigh Gas Partners LP engages in the wholesale distribution of motor fuels to gas stations, truck stops, and toll road plazas in the United States. It offers gasoline and diesel fuels. The company also owns and leases real estate used in the retail distribution of motor fuels. The company has a P/E ratio of 22.92. The average volume for Lehigh Gas Partners has been 51,000 shares per day over the past 30 days. Lehigh Gas Partners has a market cap of $300.1 million and is part of the energy industry. Shares are down 5.5% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Lehigh Gas Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk and poor profit margins. Highlights from the ratings report include:
- The debt-to-equity ratio is very high at 2.54 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, LGP maintains a poor quick ratio of 0.72, which illustrates the inability to avoid short-term cash problems.
- The gross profit margin for LEHIGH GAS PARTNERS LP is currently extremely low, coming in at 3.39%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.80% trails that of the industry average.
- Compared to where it was a year ago, the stock is now trading at a higher level, and has traded in line with the S&P 500. 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 change in net income from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has decreased by 1.9% when compared to the same quarter one year ago, dropping from $4.00 million to $3.92 million.
- LEHIGH GAS PARTNERS LP' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LEHIGH GAS PARTNERS LP increased its bottom line by earning $1.19 versus $0.23 in the prior year. This year, the market expects an improvement in earnings ($1.32 versus $1.19).
- You can view the full Lehigh Gas Partners Ratings Report.