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." ZAIS Financial (NYSE: ZFC) shares currently have a dividend yield of 9.70%. ZAIS Financial Corp., through its subsidiary, ZAIS Financial Partners, L.P., invests, finances, and manages various residential mortgage assets, real estate-related securities, and financial assets. The company has a P/E ratio of 18.01. The average volume for ZAIS Financial has been 32,900 shares per day over the past 30 days. ZAIS Financial has a market cap of $132.1 million and is part of the real estate industry. Shares are up 3.1% year-to-date as of the close of trading on Monday. TheStreet Ratings rates ZAIS Financial as a sell. The area that we feel has been the company's primary weakness has been its generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- ZFC has underperformed the S&P 500 Index, declining 19.18% from its price level of one year ago.
- Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, ZAIS FINANCIAL CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for ZAIS FINANCIAL CORP is rather high; currently it is at 69.05%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, ZFC's net profit margin of 91.90% significantly outperformed against the industry.
- Net operating cash flow has improved to $2.91 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.
- You can view the full ZAIS Financial Ratings Report.
- ALON USA PARTNERS LP 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. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, ALON USA PARTNERS LP reported lower earnings of $2.19 versus $3.74 in the prior year. For the next year, the market is expecting a contraction of 8.4% in earnings ($2.01 versus $2.19).
- 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 54.8% when compared to the same quarter one year ago, falling from $93.53 million to $42.24 million.
- Currently the debt-to-equity ratio of 1.95 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated.
- The gross profit margin for ALON USA PARTNERS LP is currently extremely low, coming in at 7.99%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.93% trails that of the industry average.
- Net operating cash flow has significantly decreased to $45.27 million or 72.83% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Alon USA Partners Ratings Report.
- The debt-to-equity ratio is very high at 2.54 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, LGP maintains a poor quick ratio of 0.72, which illustrates the inability to avoid short-term cash problems.
- The gross profit margin for LEHIGH GAS PARTNERS LP is currently extremely low, coming in at 3.39%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.80% trails that of the industry average.
- 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, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
- The change in net income from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has decreased by 1.9% when compared to the same quarter one year ago, dropping from $4.00 million to $3.92 million.
- LEHIGH GAS PARTNERS 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, LEHIGH GAS PARTNERS LP increased its bottom line by earning $1.19 versus $0.23 in the prior year. This year, the market expects an improvement in earnings ($1.31 versus $1.19).
- You can view the full Lehigh Gas Partners Ratings Report.
- Our dividend calendar.