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." Alon USA Partners (NYSE: ALDW) shares currently have a dividend yield of 16.30%. Alon USA Partners, LP refines and markets petroleum products primarily in the South Central and Southwestern regions of the United States. The company owns and operates a crude oil refinery in Big Spring, Texas with crude oil throughput capacity of 70,000 barrels per day. The company has a P/E ratio of 12.46. The average volume for Alon USA Partners has been 160,600 shares per day over the past 30 days. Alon USA Partners has a market cap of $1.1 billion and is part of the energy industry. Shares are up 1.7% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Alon USA Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally high debt management risk, poor profit margins and weak operating cash flow. Highlights from the ratings report include:
- ALON USA 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. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, ALON USA PARTNERS LP reported lower earnings of $2.19 versus $3.74 in the prior year. For the next year, the market is expecting a contraction of 12.3% in earnings ($1.92 versus $2.19).
- 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 54.8% when compared to the same quarter one year ago, falling from $93.53 million to $42.24 million.
- Currently the debt-to-equity ratio of 1.95 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, ALDW maintains a poor quick ratio of 0.99, which illustrates the inability to avoid short-term cash problems.
- The gross profit margin for ALON USA PARTNERS LP is currently extremely low, coming in at 7.99%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.93% trails that of the industry average.
- Net operating cash flow has significantly decreased to $45.27 million or 72.83% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Alon USA Partners Ratings Report.
- In its most recent trading session, ZFC has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ZAIS FINANCIAL CORP's return on equity is below that of both the industry average and the S&P 500.
- The gross profit margin for ZAIS FINANCIAL CORP is rather high; currently it is at 56.82%. It has increased significantly from the same period last year. Along with this, the net profit margin of 23.42% is above that of the industry average.
- Net operating cash flow has significantly increased by 1192.24% to $1.67 million when compared to the same quarter last year. In addition, ZAIS FINANCIAL CORP has also vastly surpassed the industry average cash flow growth rate of 29.86%.
- You can view the full ZAIS Financial Ratings Report.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, APOLLO RESIDENTIAL MTG INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $12.31 million or 35.62% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- AMTG, with its decline in revenue, underperformed when compared the industry average of 10.3%. Since the same quarter one year prior, revenues slightly dropped by 0.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- 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. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- APOLLO RESIDENTIAL MTG INC 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, APOLLO RESIDENTIAL MTG INC swung to a loss, reporting -$1.91 versus $8.19 in the prior year. This year, the market expects an improvement in earnings ($2.12 versus -$1.91).
- You can view the full Apollo Residential Mortgage Ratings Report.
- Our dividend calendar.