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 7.50%. 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 30.85. The average volume for Suburban Propane Partners has been 161,900 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 1.3% 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, largely solid financial position with reasonable debt levels by most measures and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. 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 ($2.05 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.
- Even though the current debt-to-equity ratio is 1.05, it is still below the industry average, suggesting that this level of debt is acceptable within the Gas Utilities industry. Despite the fact that SPH's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.79 is high and demonstrates strong liquidity.
- 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.
- In its most recent trading session, SPH has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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. We feel, however, that the other strengths this company displays justify these higher price levels.
- You can view the full Suburban Propane Partners Ratings Report.