Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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.
- The debt-to-equity ratio is very high at 3.08 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, AT maintains a poor quick ratio of 0.88, which illustrates the inability to avoid short-term cash problems.
- Net operating cash flow has significantly decreased to $9.40 million or 75.41% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- AT's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 52.60%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
- The gross profit margin for ATLANTIC POWER CORP is currently lower than what is desirable, coming in at 29.38%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, AT's net profit margin of 3.74% compares favorably to the industry average.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Independent Power Producers & Energy Traders industry and the overall market on the basis of return on equity, ATLANTIC POWER CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Atlantic Power Corporation Ratings Report.
- In its most recent trading session, STB 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. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Road & Rail industry average. The net income has decreased by 2.6% when compared to the same quarter one year ago, dropping from $2.98 million to $2.90 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Road & Rail industry and the overall market, STUDENT TRANSPORTATION INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for STUDENT TRANSPORTATION INC is currently lower than what is desirable, coming in at 25.07%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.14% significantly trails the industry average.
- Currently the debt-to-equity ratio of 1.60 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Even though the debt-to-equity ratio is weak, STB's quick ratio is somewhat strong at 1.13, demonstrating the ability to handle short-term liquidity needs.
- You can view the full Student Transportation Ratings Report.
- Our dividend calendar.