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 "Buy." Suburban Propane Partners (NYSE: SPH) shares currently have a dividend yield of 7.60%. Suburban Propane Partners, L.P., through its subsidiaries, is engaged in the retail marketing and distribution of propane, fuel oil, and refined fuels. The company has a P/E ratio of 30.47. The average volume for Suburban Propane Partners has been 175,100 shares per day over the past 30 days. Suburban Propane Partners has a market cap of $2.8 billion and is part of the utilities industry. Shares are down 1.9% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Suburban Propane Partners as a buy. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, robust revenue growth and increase in net income. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- SUBURBAN PROPANE PRTNRS -LP has improved earnings per share by 9.3% 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. During the past fiscal year, SUBURBAN PROPANE PRTNRS -LP increased its bottom line by earning $1.44 versus $0.48 in the prior year. This year, the market expects an improvement in earnings ($2.03 versus $1.44).
- Despite its growing revenue, the company underperformed as compared with the industry average of 36.0%. Since the same quarter one year prior, revenues rose by 28.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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 the Gas Utilities industry average. The net income increased by 15.5% when compared to the same quarter one year prior, going from $129.49 million to $149.55 million.
- The debt-to-equity ratio of 1.05 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, SPH has managed to keep a strong quick ratio of 1.79, which demonstrates the ability to cover short-term cash needs.
- The gross profit margin for SUBURBAN PROPANE PRTNRS -LP is currently lower than what is desirable, coming in at 25.92%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 17.11% is above that of the industry average.
- You can view the full Suburban Propane Partners Ratings Report.
- The revenue growth came in higher than the industry average of 3.0%. Since the same quarter one year prior, revenues rose by 18.7%. 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 CAPITAL PRODUCT PARTNERS LP is rather high; currently it is at 66.44%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 23.69% significantly outperformed against the industry average.
- Net operating cash flow has increased to $26.80 million or 49.84% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 17.08%.
- CPLP's debt-to-equity ratio of 0.76 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. Despite the fact that CPLP's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.01 is high and demonstrates strong liquidity.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full Capital Product Partners Ratings Report.
- NRT, with its decline in revenue, slightly underperformed the industry average of 3.0%. Since the same quarter one year prior, revenues fell by 11.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The change in net income from the same quarter one year ago has 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 12.0% when compared to the same quarter one year ago, dropping from $5.84 million to $5.14 million.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, NRT has underperformed the S&P 500 Index, declining 8.04% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- NORTH EUROPEAN OIL RTY TR's earnings per share declined by 12.5% 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. During the past fiscal year, NORTH EUROPEAN OIL RTY TR reported lower earnings of $2.26 versus $2.46 in the prior year.
- You can view the full North European Oil Royalty Ratings Report.
- Our dividend calendar.