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." New Source Energy Partners (NYSE: NSLP) shares currently have a dividend yield of 9.70%. New Source Energy Partners L.P. engages in the acquisition and development of oil and natural gas properties in the United States. As of June 30, 2012, the company had 89,116 gross acres in the Golden Lane field in east-central Oklahoma; and 127 gross proved undeveloped drilling locations. The average volume for New Source Energy Partners has been 28,300 shares per day over the past 30 days. New Source Energy Partners has a market cap of $239.6 million and is part of the energy industry. Shares are up 2.6% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates New Source Energy Partners as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity and compelling growth in net income. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good. Highlights from the ratings report include:
- NSLP's very impressive revenue growth greatly exceeded the industry average of 7.8%. Since the same quarter one year prior, revenues leaped by 99.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, NEW SOURCE ENERGY PRTRS LP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- 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. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- NEW SOURCE ENERGY PRTRS LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, NEW SOURCE ENERGY PRTRS LP increased its bottom line by earning $2.92 versus $0.14 in the prior year. For the next year, the market is expecting a contraction of 63.4% in earnings ($1.07 versus $2.92).
- NSLP's debt-to-equity ratio of 0.61 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.05 is sturdy.
- You can view the full New Source Energy Partners Ratings Report.