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." USA Compression Partners (NYSE: USAC) shares currently have a dividend yield of 7.80%. USA Compression Partners, LP provides natural gas compression services under term contracts with customers in the oil and gas industry in the United States. The company has a P/E ratio of 72.40. The average volume for USA Compression Partners has been 185,000 shares per day over the past 30 days. USA Compression Partners has a market cap of $608.4 million and is part of the energy industry. Shares are down 5.8% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates USA Compression Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself and generally high debt management risk. Highlights from the ratings report include:
- In its most recent trading session, USAC 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. Along with this company's share value not moving any higher or lower since its value 12 months ago, we feel that there is very little room for future price appreciation.
- USAC's debt-to-equity ratio of 0.71 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. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.40 is very low and demonstrates very weak liquidity.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Energy Equipment & Services industry and the overall market, USA COMPRESSION PRTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for USA COMPRESSION PRTNRS LP is rather high; currently it is at 64.71%. Regardless of USAC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.79% trails the industry average.
- Net operating cash flow has slightly increased to $10.07 million or 7.57% when compared to the same quarter last year. In addition, USA COMPRESSION PRTNRS LP has also vastly surpassed the industry average cash flow growth rate of -80.13%.
- You can view the full USA Compression Partners Ratings Report.