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 "Sell." Northern Tier Energy (NYSE: NTI) shares currently have a dividend yield of 6.40%. Northern Tier Energy LP, an independent downstream energy company, is engaged in refining, retail, and pipeline operations in the United States. It operates through two segments, Refining and Retail. The company has a P/E ratio of 10.78. The average volume for Northern Tier Energy has been 526,400 shares per day over the past 30 days. Northern Tier Energy has a market cap of $2.4 billion and is part of the energy industry. Shares are up 3.1% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Northern Tier Energy as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 75.6% when compared to the same quarter one year ago, falling from $84.50 million to $20.60 million.
- The gross profit margin for NORTHERN TIER ENERGY LP is currently extremely low, coming in at 5.23%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.70% trails that of the industry average.
- Net operating cash flow has significantly decreased to $7.20 million or 94.61% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- In its most recent trading session, NTI has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. This company's share value has not moved any higher or lower since its value 12 months ago, and we feel the risks associated with investing in this company will outweigh any potential future gains.
- NTI's debt-to-equity ratio of 0.71 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 0.79 is weak.
- You can view the full Northern Tier Energy Ratings Report.
- Net operating cash flow has significantly decreased to -$120.72 million or 1779.21% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- HLSS has underperformed the S&P 500 Index, declining 5.11% 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.
- 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 Thrifts & Mortgage Finance industry and the overall market on the basis of return on equity, HOME LOAN SERVICING SOLTNS has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- The gross profit margin for HOME LOAN SERVICING SOLTNS is currently very high, coming in at 95.36%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 50.82% significantly outperformed against the industry average.
- HOME LOAN SERVICING SOLTNS has improved earnings per share by 27.3% 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 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, HOME LOAN SERVICING SOLTNS increased its bottom line by earning $1.97 versus $1.23 in the prior year. This year, the market expects an improvement in earnings ($2.12 versus $1.97).
- You can view the full Home Loan Servicing Solutions Ratings Report.
- 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, WASHINGTON REIT underperformed against that of the industry average and is significantly less than that of the S&P 500.
- Net operating cash flow has decreased to $19.83 million or 48.26% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The gross profit margin for WASHINGTON REIT is rather low; currently it is at 21.02%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 28.17% is above that of the industry average.
- WASHINGTON REIT 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, WASHINGTON REIT reported lower earnings of $0.00 versus $0.12 in the prior year. This year, the market expects an increase in earnings to $0.15 from $0.00.
- Compared to where it was trading one year ago, WRE is down 12.19% to its most recent closing price of 24.28. Looking ahead, our view is that this stock still does not have good upside potential and may even suffer further declines.
- You can view the full Washington REIT Ratings Report.
- Our dividend calendar.