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 "Hold." Legacy Reserves (NASDAQ: LGCY) shares currently have a dividend yield of 9.30%. Legacy Reserves LP owns and operates oil and natural gas properties in the United States. The average volume for Legacy Reserves has been 167,000 shares per day over the past 30 days. Legacy Reserves has a market cap of $1.5 billion and is part of the energy industry. Shares are down 8.9% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Legacy Reserves as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 7.8%. Since the same quarter one year prior, revenues rose by 33.5%. 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.
- Net operating cash flow has significantly increased by 96.18% to $39.63 million when compared to the same quarter last year. In addition, LEGACY RESERVES LP has also vastly surpassed the industry average cash flow growth rate of -23.54%.
- LEGACY RESERVES 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, LEGACY RESERVES LP swung to a loss, reporting -$0.62 versus $1.43 in the prior year. This year, the market expects an improvement in earnings ($1.23 versus -$0.62).
- 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LEGACY RESERVES LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for LEGACY RESERVES LP is currently extremely low, coming in at 11.32%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -37.04% is significantly below that of the industry average.
- You can view the full Legacy Reserves Ratings Report.
- The gross profit margin for RESOURCE CAPITAL CORP is rather high; currently it is at 53.51%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, RSO's net profit margin of 2.78% significantly trails the industry average.
- RSO, with its decline in revenue, underperformed when compared the industry average of 6.7%. Since the same quarter one year prior, revenues fell by 16.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 92.3% when compared to the same quarter one year ago, falling from $15.05 million to $1.17 million.
- 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, RESOURCE CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Resource Capital Corporation Ratings Report.
- Compared to its closing price of one year ago, BGCP's share price has jumped by 54.02%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Capital Markets industry and the overall market, BGC PARTNERS INC's return on equity exceeds that of both the industry average and the S&P 500.
- BGC PARTNERS INC 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. 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, BGC PARTNERS INC increased its bottom line by earning $0.35 versus $0.16 in the prior year. This year, the market expects an improvement in earnings ($0.55 versus $0.35).
- The gross profit margin for BGC PARTNERS INC is currently extremely low, coming in at 5.26%. Regardless of BGCP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, BGCP's net profit margin of 0.96% is significantly lower than the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Capital Markets industry. The net income has significantly decreased by 70.8% when compared to the same quarter one year ago, falling from $14.17 million to $4.13 million.
- You can view the full BGC Partners Ratings Report.
- Our dividend calendar.