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 "Hold."Enerplus (NYSE: ERF) shares currently have a dividend yield of 4.20%. Enerplus Corporation, together with subsidiaries, is engaged in the exploration and development of crude oil and natural gas in the United States and Canada. The company has a P/E ratio of 51.15. The average volume for Enerplus has been 576,500 shares per day over the past 30 days. Enerplus has a market cap of $4.8 billion and is part of the energy industry. Shares are up 26.1% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Enerplus as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and expanding profit margins. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 3.5%. Since the same quarter one year prior, revenues rose by 38.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for ENERPLUS CORP is rather high; currently it is at 67.46%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 10.67% is above that of the industry average.
- The current debt-to-equity ratio, 0.52, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.42 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Powered by its strong earnings growth of 733.33% and other important driving factors, this stock has surged by 46.00% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
- Net operating cash flow has decreased to $140.41 million or 12.91% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Enerplus Ratings Report.
- The revenue growth came in higher than the industry average of 7.1%. Since the same quarter one year prior, revenues slightly increased by 5.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The current debt-to-equity ratio, 0.51, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.08, which illustrates the ability to avoid short-term cash problems.
- 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, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- The gross profit margin for DOMTAR CORP is rather low; currently it is at 20.00%. Regardless of UFS's low profit margin, it has managed to increase from the same period last year.
- Net operating cash flow has decreased to $104.00 million or 13.33% when compared to the same quarter last year. Despite a decrease in cash flow of 13.33%, DOMTAR CORP is in line with the industry average cash flow growth rate of -16.22%.
- You can view the full Domtar Ratings Report.
- ATLS's very impressive revenue growth greatly exceeded the industry average of 3.5%. Since the same quarter one year prior, revenues leaped by 66.5%. 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.
- Net operating cash flow has significantly increased by 97.96% to -$0.44 million when compared to the same quarter last year. In addition, ATLAS ENERGY LP has also vastly surpassed the industry average cash flow growth rate of 16.72%.
- ATLAS ENERGY LP's earnings per share declined by 8.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ATLAS ENERGY LP reported poor results of -$1.48 versus -$1.02 in the prior year. This year, the market expects an improvement in earnings ($1.60 versus -$1.48).
- The debt-to-equity ratio is very high at 8.16 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, ATLS has a quick ratio of 0.60, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- 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 Oil, Gas & Consumable Fuels industry and the overall market, ATLAS ENERGY LP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Atlas Energy Ratings Report.
- Our dividend calendar.