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 "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.
- Despite its growing revenue, the company underperformed as compared with the industry average of 16.3%. Since the same quarter one year prior, revenues slightly increased by 7.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- SMTP 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 2.91, which clearly demonstrates the ability to cover short-term cash needs.
- 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Internet Software & Services industry average. The net income increased by 1.9% when compared to the same quarter one year prior, going from $0.31 million to $0.32 million.
- 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 Internet Software & Services industry and the overall market, SMTP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- You can view the full SMTP Ratings Report.
- The revenue growth came in higher than the industry average of 6.9%. Since the same quarter one year prior, revenues rose by 24.9%. 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 71.92% to $7.53 million when compared to the same quarter last year. In addition, UMH PROPERTIES INC has also vastly surpassed the industry average cash flow growth rate of 10.91%.
- The share price of UMH PROPERTIES INC has not done very well: it is down 5.57% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- 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 Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, UMH PROPERTIES INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for UMH PROPERTIES INC is currently extremely low, coming in at 9.63%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -4.01% is significantly below that of the industry average.
- You can view the full UMH Properties Ratings Report.
- Our dividend calendar.