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." Stonemor Partners (NYSE: STON) shares currently have a dividend yield of 9.80%. StoneMor Partners L.P., together with its subsidiaries, owns and operates cemeteries in the United States. It operates through Cemetery Operations Southeast, Cemetery Operations Northeast, Cemetery Operations West, and Funeral Homes segments. The average volume for Stonemor Partners has been 84,200 shares per day over the past 30 days. Stonemor Partners has a market cap of $579.1 million and is part of the diversified services industry. Shares are down 4.7% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Stonemor Partners as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- STON's revenue growth has slightly outpaced the industry average of 2.1%. Since the same quarter one year prior, revenues slightly increased by 6.3%. 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 STONEMOR PARTNERS LP is rather high; currently it is at 51.35%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -5.61% is in-line with the industry average.
- STONEMOR PARTNERS LP has improved earnings per share by 20.0% 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, STONEMOR PARTNERS LP reported poor results of -$0.88 versus -$0.16 in the prior year. This year, the market expects an improvement in earnings (-$0.32 versus -$0.88).
- Net operating cash flow has significantly decreased to -$1.82 million or 265.51% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- 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 Diversified Consumer Services industry and the overall market, STONEMOR PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Stonemor Partners Ratings Report.