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." Regency Energy Partners (NYSE: RGP) shares currently have a dividend yield of 6.60%. Regency Energy Partners LP is engaged in the gathering and processing, compression, treating, and transportation of natural gas; and the transportation, fractionation, and storage of natural gas liquids (NGLs). The company has a P/E ratio of 126.13. The average volume for Regency Energy Partners has been 1,024,500 shares per day over the past 30 days. Regency Energy Partners has a market cap of $10.4 billion and is part of the energy industry. Shares are up 12% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Regency Energy Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- RGP's very impressive revenue growth greatly exceeded the industry average of 3.1%. Since the same quarter one year prior, revenues leaped by 59.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving 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 131.0% when compared to the same quarter one year prior, rising from -$29.00 million to $9.00 million.
- Net operating cash flow has significantly increased by 179.10% to $187.00 million when compared to the same quarter last year. In addition, REGENCY ENERGY PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of 17.38%.
- REGENCY ENERGY PARTNERS LP reported significant earnings per share improvement 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, REGENCY ENERGY PARTNERS LP reported lower earnings of $0.03 versus $0.13 in the prior year. This year, the market expects an improvement in earnings ($0.52 versus $0.03).
- RGP's debt-to-equity ratio of 0.63 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. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.72 is weak.
- You can view the full Regency Energy Partners Ratings Report.