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." Suburban Propane Partners (NYSE: SPH) shares currently have a dividend yield of 8.20%. Suburban Propane Partners, L.P., through its subsidiaries, is engaged in the retail marketing and distribution of propane, fuel oil, and refined fuels. The company has a P/E ratio of 32.02. The average volume for Suburban Propane Partners has been 196,200 shares per day over the past 30 days. Suburban Propane Partners has a market cap of $2.6 billion and is part of the utilities industry. Shares are down 9.7% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Suburban Propane Partners 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 also find weaknesses including a generally disappointing performance in the stock itself, weak operating cash flow and poor profit margins. Highlights from the ratings report include:
- Despite its growing revenue, the company underperformed as compared with the industry average of 16.4%. Since the same quarter one year prior, revenues slightly increased by 7.2%. 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.
- SUBURBAN PROPANE PRTNRS -LP' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SUBURBAN PROPANE PRTNRS -LP increased its bottom line by earning $1.45 versus $0.48 in the prior year. This year, the market expects an improvement in earnings ($1.83 versus $1.45).
- Even though the current debt-to-equity ratio is 1.09, it is still below the industry average, suggesting that this level of debt is acceptable within the Gas Utilities industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.92 is weak.
- Net operating cash flow has significantly decreased to $4.16 million or 93.23% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, SPH has underperformed the S&P 500 Index, declining 6.97% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- You can view the full Suburban Propane Partners Ratings Report.
- The revenue growth greatly exceeded the industry average of 7.7%. Since the same quarter one year prior, revenues rose by 31.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for HORIZON TECHNOLOGY FINANCE is rather high; currently it is at 65.15%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 44.62% significantly outperformed against the industry average.
- Net operating cash flow has slightly increased to -$16.25 million or 7.16% when compared to the same quarter last year. Despite an increase in cash flow of 7.16%, HORIZON TECHNOLOGY FINANCE is still growing at a significantly lower rate than the industry average of 119.00%.
- 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 Capital Markets industry and the overall market on the basis of return on equity, HORIZON TECHNOLOGY FINANCE underperformed against that of the industry average and is significantly less than that of the S&P 500.
- HRZN has underperformed the S&P 500 Index, declining 5.36% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full Horizon Technology Finance Ratings Report.
- The revenue growth greatly exceeded the industry average of 7.8%. Since the same quarter one year prior, revenues rose by 27.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, MID-CON ENERGY PARTNERS -LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- MID-CON ENERGY PARTNERS -LP has improved earnings per share by 30.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MID-CON ENERGY PARTNERS -LP reported lower earnings of $1.44 versus $1.63 in the prior year. This year, the market expects an improvement in earnings ($1.78 versus $1.44).
- MCEP has underperformed the S&P 500 Index, declining 7.57% 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.
- Currently the debt-to-equity ratio of 1.68 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Even though the debt-to-equity ratio is weak, MCEP's quick ratio is somewhat strong at 1.15, demonstrating the ability to handle short-term liquidity needs.
- You can view the full Mid-Con Energy Partners Ratings Report.
- Our dividend calendar.