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."Linn Energy (NASDAQ: LINE) shares currently have a dividend yield of 10.20%. Linn Energy, LLC, an independent oil and natural gas company, acquires and develops oil and natural gas properties. The company's properties are located in Rockies, the Mid-Continent, the Hugoton Basin, California, the Permian Basin, Michigan, Illinois, and East Texas in the United States. The average volume for Linn Energy has been 1,678,700 shares per day over the past 30 days. Linn Energy has a market cap of $9.4 billion and is part of the energy industry. Shares are down 7.2% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Linn Energy as a hold. The company's strengths can be seen in multiple areas, such as its 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 came in higher than the industry average of 7.7%. Since the same quarter one year prior, revenues slightly increased by 9.7%. 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 slightly increased to $225.70 million or 9.31% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -23.28%.
- LINN ENERGY LLC 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 two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, LINN ENERGY LLC reported poor results of -$2.78 versus -$1.86 in the prior year. This year, the market expects an improvement in earnings ($1.63 versus -$2.78).
- Currently the debt-to-equity ratio of 1.56 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.43, which clearly demonstrates the inability to cover short-term cash needs.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, LINN ENERGY LLC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Linn Energy Ratings Report.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Semiconductors & Semiconductor Equipment industry average. The net income increased by 38.9% when compared to the same quarter one year prior, rising from -$22.22 million to -$13.58 million.
- Net operating cash flow has increased to $21.04 million or 21.62% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -9.91%.
- CYPRESS SEMICONDUCTOR CORP has improved earnings per share by 40.0% 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, CYPRESS SEMICONDUCTOR CORP reported poor results of -$0.32 versus -$0.16 in the prior year. This year, the market expects an improvement in earnings ($0.51 versus -$0.32).
- The debt-to-equity ratio of 1.36 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, CY has a quick ratio of 0.61, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- 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 Semiconductors & Semiconductor Equipment industry and the overall market, CYPRESS SEMICONDUCTOR CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Cypress Semiconductor Corporation Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Specialty Retail industry. The net income increased by 172.1% when compared to the same quarter one year prior, rising from $78.06 million to $212.38 million.
- SPLS's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that SPLS's debt-to-equity ratio is low, the quick ratio, which is currently 0.69, displays a potential problem in covering short-term cash needs.
- The gross profit margin for STAPLES INC is currently lower than what is desirable, coming in at 27.39%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.61% trails that of the industry average.
- Net operating cash flow has decreased to $233.15 million or 28.13% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Staples Ratings Report.
- Our dividend calendar.