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." Hugoton Royalty (NYSE: HGT) shares currently have a dividend yield of 13.10%. Hugoton Royalty Trust operates as an express trust in the United States. The company holds an 80% net profits interests in certain natural gas producing working interest properties of XTO Energy Inc. XTO Energy Inc. The company has a P/E ratio of 9.16. The average volume for Hugoton Royalty has been 181,500 shares per day over the past 30 days. Hugoton Royalty has a market cap of $321.6 million and is part of the energy industry. Shares are up 7.9% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Hugoton Royalty as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year. Highlights from the ratings report include:
- HGT's very impressive revenue growth greatly exceeded the industry average of 7.9%. Since the same quarter one year prior, revenues leaped by 119.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- HGT 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.
- The gross profit margin for HUGOTON ROYALTY TRUST is currently very high, coming in at 100.00%. HGT has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, HGT's net profit margin of 95.01% significantly outperformed against the industry.
- HUGOTON ROYALTY TRUST 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, HUGOTON ROYALTY TRUST reported lower earnings of $0.58 versus $1.40 in the prior year.
- HGT has underperformed the S&P 500 Index, declining 15.73% 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.
- You can view the full Hugoton Royalty Ratings Report.