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." ONEOK Partners (NYSE: OKS) shares currently have a dividend yield of 5.40%. ONEOK Partners, L.P. is engaged in the gathering, processing, storage, and transportation of natural gas in the United States. It operates in three segments: Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines. The company has a P/E ratio of 20.19. The average volume for ONEOK Partners has been 675,900 shares per day over the past 30 days. ONEOK Partners has a market cap of $8.9 billion and is part of the energy industry. Shares are up 5.7% year-to-date as of the close of trading on Monday. TheStreet Ratings rates ONEOK Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels, good cash flow from operations, increase in net income and growth in earnings per share. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated. 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 25.6%. 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 69.5% when compared to the same quarter one year prior, rising from $156.60 million to $265.39 million.
- Net operating cash flow has significantly increased by 153.06% to $459.16 million when compared to the same quarter last year. In addition, ONEOK PARTNERS -LP has also vastly surpassed the industry average cash flow growth rate of 17.38%.
- ONEOK 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, ONEOK PARTNERS -LP reported lower earnings of $2.35 versus $3.04 in the prior year. This year, the market expects an improvement in earnings ($2.98 versus $2.35).
- You can view the full ONEOK Partners Ratings Report.