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 "Sell." Lehigh Gas Partners (NYSE: LGP) shares currently have a dividend yield of 7.60%. Lehigh Gas Partners LP is engaged in the wholesale distribution of motor fuels to sub-wholesalers, independent dealers, lessee dealers, and others; and retail distribution of motor fuels to end customers at commission sites in the United States. The company has a P/E ratio of 26.81. The average volume for Lehigh Gas Partners has been 46,200 shares per day over the past 30 days. Lehigh Gas Partners has a market cap of $300.1 million and is part of the energy industry. Shares are down 7.3% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Lehigh Gas Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk, poor profit margins and feeble growth in its earnings per share. Highlights from the ratings report include:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 62.0% when compared to the same quarter one year ago, falling from $3.76 million to $1.43 million.
- The debt-to-equity ratio is very high at 2.83 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, LGP maintains a poor quick ratio of 0.74, which illustrates the inability to avoid short-term cash problems.
- The gross profit margin for LEHIGH GAS PARTNERS LP is currently extremely low, coming in at 3.00%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.29% trails that of the industry average.
- LEHIGH GAS PARTNERS LP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, LEHIGH GAS PARTNERS LP increased its bottom line by earning $1.19 versus $0.23 in the prior year. For the next year, the market is expecting a contraction of 8.4% in earnings ($1.09 versus $1.19).
- 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. 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, implying reduced upside potential.
- You can view the full Lehigh Gas Partners Ratings Report.