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." NGL Energy Partners (NYSE: NGL) shares currently have a dividend yield of 5.10%. NGL Energy Partners LP, through its subsidiaries, is primarily engaged in the crude oil logistics, water solutions, liquids, and retail propane businesses in the United States. It operates through Crude Oil Logistics, Water Solutions, Liquids, and Retail Propane segments. The company has a P/E ratio of 85.59. The average volume for NGL Energy Partners has been 331,400 shares per day over the past 30 days. NGL Energy Partners has a market cap of $3.3 billion and is part of the energy industry. Shares are up 27.1% year-to-date as of the close of trading on Monday. TheStreet Ratings rates NGL Energy Partners as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income, solid stock price performance 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:
- NGL's very impressive revenue growth greatly exceeded the industry average of 3.2%. Since the same quarter one year prior, revenues leaped by 145.8%. 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 89.5% when compared to the same quarter one year prior, rising from $22.34 million to $42.33 million.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 47.07% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- NGL ENERGY PARTNERS LP has improved earnings per share by 17.9% 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, NGL ENERGY PARTNERS LP reported lower earnings of $0.32 versus $0.56 in the prior year. This year, the market expects an improvement in earnings ($1.58 versus $0.32).
- The debt-to-equity ratio of 1.07 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, NGL maintains a poor quick ratio of 0.92, which illustrates the inability to avoid short-term cash problems.
- You can view the full NGL Energy Partners Ratings Report.