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." QR Energy (NYSE: QRE) shares currently have a dividend yield of 11.10%. QR Energy, LP, through its subsidiary, QRE Operating, LLC, is engaged in the acquisition, exploitation, development, and production of oil and natural gas properties in the United States. The average volume for QR Energy has been 292,800 shares per day over the past 30 days. QR Energy has a market cap of $1.0 billion and is part of the energy industry. Shares are up 4.1% year-to-date as of the close of trading on Monday. TheStreet Ratings rates QR Energy as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 3.1%. Since the same quarter one year prior, revenues rose by 16.9%. 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.
- Net operating cash flow has increased to $42.17 million or 24.31% when compared to the same quarter last year. In addition, QR ENERGY LP has also modestly surpassed the industry average cash flow growth rate of 17.43%.
- 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. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The debt-to-equity ratio is very high at 2.23 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, QRE maintains a poor quick ratio of 0.87, which illustrates the inability to avoid short-term cash problems.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, QR ENERGY LP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full QR Energy Ratings Report.