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." Plains All American Pipeline (NYSE: PAA) shares currently have a dividend yield of 4.30%. Plains All American Pipeline, L.P., together with its subsidiaries, is engaged in transporting, storing, terminalling, and marketing crude oil, natural gas liquids (NGL), natural gas, and refined products in the United States and Canada. The company has a P/E ratio of 26.28. The average volume for Plains All American Pipeline has been 795,300 shares per day over the past 30 days. Plains All American Pipeline has a market cap of $21.6 billion and is part of the energy industry. Shares are up 14.1% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Plains All American Pipeline as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows low profit margins. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 3.5%. Since the same quarter one year prior, revenues rose by 10.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in 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. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- PLAINS ALL AMER PIPELNE -LP's earnings per share declined by 42.5% in the most recent quarter compared to 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, PLAINS ALL AMER PIPELNE -LP increased its bottom line by earning $2.80 versus $2.40 in the prior year. For the next year, the market is expecting a contraction of 11.6% in earnings ($2.48 versus $2.80).
- The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 27.3% when compared to the same quarter one year ago, falling from $528.00 million to $384.00 million.
- PAA's debt-to-equity ratio of 1.00 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. Despite the fact that PAA's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.67 is low and demonstrates weak liquidity.
- You can view the full Plains All American Pipeline Ratings Report.