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." Enerplus (NYSE: ERF) shares currently have a dividend yield of 4.60%. Enerplus Corporation, together with subsidiaries, is engaged in the exploration and development of crude oil and natural gas in the United States and Canada. The company has a P/E ratio of 46.22. The average volume for Enerplus has been 559,100 shares per day over the past 30 days. Enerplus has a market cap of $4.3 billion and is part of the energy industry. Shares are up 17.3% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Enerplus as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and expanding profit margins. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 3.3%. Since the same quarter one year prior, revenues rose by 38.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for ENERPLUS CORP is rather high; currently it is at 67.46%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 10.67% is above that of the industry average.
- The current debt-to-equity ratio, 0.52, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.42 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Powered by its strong earnings growth of 733.33% and other important driving factors, this stock has surged by 38.31% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
- Net operating cash flow has decreased to $140.41 million or 12.91% 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 Enerplus Ratings Report.
- HCLP's very impressive revenue growth greatly exceeded the industry average of 5.2%. Since the same quarter one year prior, revenues leaped by 184.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 138.70% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- HCLP's debt-to-equity ratio of 0.85 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 2.60 is very high and demonstrates very strong liquidity.
- 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 Metals & Mining industry and the overall market, HI-CRUSH PARTNERS LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Metals & Mining industry average. The net income increased by 32.3% when compared to the same quarter one year prior, rising from $10.78 million to $14.26 million.
- You can view the full Hi-Crush Partners Ratings Report.
- The revenue growth came in higher than the industry average of 10.1%. Since the same quarter one year prior, revenues rose by 27.6%. 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.
- The gross profit margin for SABRA HEALTH CARE REIT INC is rather high; currently it is at 62.78%. 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 -17.87% is in-line with the industry average.
- SABRA HEALTH CARE REIT INC 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. 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, SABRA HEALTH CARE REIT INC increased its bottom line by earning $0.67 versus $0.53 in the prior year. This year, the market expects an improvement in earnings ($1.37 versus $0.67).
- Net operating cash flow has significantly decreased to $1.21 million or 94.41% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The share price of SABRA HEALTH CARE REIT INC has not done very well: it is down 10.17% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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 Sabra Health Care REIT Ratings Report.
- Our dividend calendar.