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 9.40%. Legacy Reserves LP owns and operates oil and natural gas properties in the United States. The average volume for Legacy Reserves has been 187,300 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 9.6% year-to-date as of the close of trading on Tuesday. 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 -23.34%.
- 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 ($1.19 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 NATURAL RESOURCE PARTNERS LP is currently very high, coming in at 94.45%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 56.79% significantly outperformed against the industry average.
- NRP, with its decline in revenue, underperformed when compared the industry average of 7.8%. Since the same quarter one year prior, revenues fell by 19.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- NATURAL RESOURCE PARTNERS LP's earnings per share declined by 25.0% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, NATURAL RESOURCE PARTNERS LP reported lower earnings of $1.54 versus $1.97 in the prior year. For the next year, the market is expecting a contraction of 20.1% in earnings ($1.23 versus $1.54).
- Net operating cash flow has decreased to $57.56 million or 25.76% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, NATURAL RESOURCE PARTNERS LP has marginally lower results.
- You can view the full Natural Resources Partners L.P Ratings Report.
- The revenue growth came in higher than the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 32.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- FERRELLGAS PARTNERS -LP's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, FERRELLGAS PARTNERS -LP turned its bottom line around by earning $0.68 versus -$0.14 in the prior year. This year, the market expects an improvement in earnings ($1.27 versus $0.68).
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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 gross profit margin for FERRELLGAS PARTNERS -LP is rather low; currently it is at 17.38%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 6.95% trails that of the industry average.
- Net operating cash flow has significantly decreased to -$35.75 million or 191.42% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Ferrellgas Partners Ratings Report.
- Our dividend calendar.