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." Atlas Pipeline Partners (NYSE: APL) shares currently have a dividend yield of 7.60%. Atlas Pipeline Partners, L.P. operates in the gathering and processing segments of the midstream natural gas industry. It operates through two segments, Gathering and Processing; and Transportation, Treating, and Other. The average volume for Atlas Pipeline Partners has been 467,600 shares per day over the past 30 days. Atlas Pipeline Partners has a market cap of $2.6 billion and is part of the energy industry. Shares are down 7.7% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Atlas Pipeline Partners as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, poor profit margins and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- APL's very impressive revenue growth greatly exceeded the industry average of 3.1%. Since the same quarter one year prior, revenues leaped by 69.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 115.9% when compared to the same quarter one year prior, rising from -$28.86 million to $4.59 million.
- ATLAS PIPELINE PARTNER LP has improved earnings per share by 43.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ATLAS PIPELINE PARTNER LP swung to a loss, reporting -$2.19 versus $0.97 in the prior year. This year, the market expects an improvement in earnings (-$0.25 versus -$2.19).
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ATLAS PIPELINE PARTNER LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for ATLAS PIPELINE PARTNER LP is currently extremely low, coming in at 12.45%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.64% trails that of the industry average.
- You can view the full Atlas Pipeline Partners Ratings Report.