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." Alon USA Partners (NYSE: ALDW) shares currently have a dividend yield of 14.30%. Alon USA Partners, LP refines and markets petroleum products primarily in the South Central and Southwestern regions of the United States. The company owns and operates a crude oil refinery in Big Spring, Texas with crude oil throughput capacity of 70,000 barrels per day. The company has a P/E ratio of 14.15. The average volume for Alon USA Partners has been 143,000 shares per day over the past 30 days. Alon USA Partners has a market cap of $1.2 billion and is part of the energy industry. Shares are up 10.8% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates Alon USA Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- 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. Along with the unfavorable debt-to-equity ratio, ALDW maintains a poor quick ratio of 0.99, which illustrates the inability to avoid short-term cash problems.
- 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.
- The share price of ALON USA PARTNERS LP has not done very well: it is down 20.69% 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. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full Alon USA Partners Ratings Report.
- 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 Marine industry and the overall market, DIANA CONTAINERSHIPS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $5.54 million or 29.34% 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.
- DCIX's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 54.40%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- DCIX, with its decline in revenue, underperformed when compared the industry average of 5.5%. Since the same quarter one year prior, revenues fell by 11.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- DCIX's debt-to-equity ratio of 0.91 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.
- You can view the full Diana Containerships Ratings Report.
- 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 gross profit margin for USA COMPRESSION PRTNRS LP is rather high; currently it is at 64.71%. Regardless of USAC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.79% trails the industry average.
- USA COMPRESSION PRTNRS LP has improved earnings per share by 42.9% 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. This trend suggests that the performance of the business is improving. During the past fiscal year, USA COMPRESSION PRTNRS LP increased its bottom line by earning $0.32 versus $0.15 in the prior year. This year, the market expects an improvement in earnings ($0.57 versus $0.32).
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Energy Equipment & Services industry average. The net income increased by 55.3% when compared to the same quarter one year prior, rising from $2.52 million to $3.92 million.
- USAC's very impressive revenue growth greatly exceeded the industry average of 11.2%. Since the same quarter one year prior, revenues leaped by 54.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- You can view the full USA Compression Partners Ratings Report.
- Our dividend calendar.