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.