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 "Buy." Dorchester Minerals L.P (NASDAQ: DMLP) shares currently have a dividend yield of 7.30%. Dorchester Minerals, L.P. is engaged in the acquisition, ownership, and administration of producing and nonproducing crude oil and natural gas royalty, net profits, and leasehold interests in the United States. The company has a P/E ratio of 18.78. The average volume for Dorchester Minerals L.P has been 43,200 shares per day over the past 30 days. Dorchester Minerals L.P has a market cap of $792.3 million and is part of the financial services industry. Shares are down 0.6% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Dorchester Minerals L.P as a buy. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity, good cash flow from operations, expanding profit margins and increase in stock price during the past year. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook. Highlights from the ratings report include:
- DMLP has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 29.68, which clearly demonstrates the ability to cover short-term cash needs.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, DORCHESTER MINERALS -LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Net operating cash flow has increased to $13.89 million or 12.12% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -23.15%.
- The gross profit margin for DORCHESTER MINERALS -LP is currently very high, coming in at 92.94%. Regardless of DMLP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DMLP's net profit margin of 69.53% significantly outperformed against the industry.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full Dorchester Minerals L.P Ratings Report.