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." USA Compression Partners (NYSE: USAC) shares currently have a dividend yield of 7.10%. USA Compression Partners, LP provides natural gas compression services under term contracts with customers in the oil and gas industry in the United States. The company has a P/E ratio of 84.41. The average volume for USA Compression Partners has been 29,200 shares per day over the past 30 days. USA Compression Partners has a market cap of $648.0 million and is part of the energy industry. Shares are up 1.2% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates USA Compression Partners as a sell. Among the areas we feel are negative, one of the most important has been very high debt management risk by most measures. Highlights from the ratings report include:
- Despite currently having a low debt-to-equity ratio of 0.59, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.36 is very low and demonstrates very weak liquidity.
- 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 Energy Equipment & Services industry and the overall market, USA COMPRESSION PRTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for USA COMPRESSION PRTNRS LP is rather high; currently it is at 67.88%. Regardless of USAC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 9.12% trails the industry average.
- Net operating cash flow has significantly increased by 128.57% to $26.51 million when compared to the same quarter last year. In addition, USA COMPRESSION PRTNRS LP has also vastly surpassed the industry average cash flow growth rate of 23.27%.
- USA COMPRESSION PRTNRS 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, USA COMPRESSION PRTNRS LP increased its bottom line by earning $0.32 versus $0.15 in the prior year. This year, the market expects an improvement in earnings ($0.57 versus $0.32).
- You can view the full USA Compression Partners Ratings Report.
- 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 45.8% when compared to the same quarter one year ago, falling from $0.61 million to $0.33 million.
- 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, GLADSTONE COMMERCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has declined marginally to $4.31 million or 9.67% 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.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, GOOD has underperformed the S&P 500 Index, declining 13.85% 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.
- GLADSTONE COMMERCIAL CORP's earnings per share declined by 25.0% in the most recent quarter compared to 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, GLADSTONE COMMERCIAL CORP reported poor results of -$0.22 versus -$0.05 in the prior year. This year, the market expects an improvement in earnings (-$0.16 versus -$0.22).
- You can view the full Gladstone Commercial Corporation Ratings Report.
- In its most recent trading session, STB 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. 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.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Road & Rail industry. The net income has decreased by 2.6% when compared to the same quarter one year ago, dropping from $2.98 million to $2.90 million.
- 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 Road & Rail industry and the overall market, STUDENT TRANSPORTATION INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for STUDENT TRANSPORTATION INC is currently lower than what is desirable, coming in at 25.07%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.14% significantly trails the industry average.
- Currently the debt-to-equity ratio of 1.60 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, STB's quick ratio is somewhat strong at 1.13, demonstrating the ability to handle short-term liquidity needs.
- You can view the full Student Transportation Ratings Report.
- Our dividend calendar.