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."Capital Product Partners (NASDAQ: CPLP) shares currently have a dividend yield of 8.40%. Capital Product Partners L.P., a shipping company, provides marine transportation services in Greece. The company has a P/E ratio of 10.07. The average volume for Capital Product Partners has been 222,000 shares per day over the past 30 days. Capital Product Partners has a market cap of $986.0 million and is part of the transportation industry. Shares are up 5.8% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Capital Product Partners as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 1.5%. Since the same quarter one year prior, revenues rose by 13.6%. 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.
- CPLP's debt-to-equity ratio of 0.77 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 CPLP's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.91 is high and demonstrates strong liquidity.
- The gross profit margin for CAPITAL PRODUCT PARTNERS LP is rather high; currently it is at 58.94%. Regardless of CPLP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CPLP's net profit margin of 16.47% compares favorably to the industry average.
- CAPITAL PRODUCT 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. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, CAPITAL PRODUCT PARTNERS LP turned its bottom line around by earning $0.99 versus -$0.45 in the prior year.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CAPITAL PRODUCT PARTNERS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full Capital Product Partners Ratings Report.
- 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, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- LEGACY RESERVES 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. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, LEGACY RESERVES LP swung to a loss, reporting -$0.62 versus $1.43 in the prior year. This year, the market expects an improvement in earnings ($0.85 versus -$0.62).
- LGCY, with its decline in revenue, underperformed when compared the industry average of 1.5%. Since the same quarter one year prior, revenues fell by 26.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 46.26% is the gross profit margin for LEGACY RESERVES LP which we consider to be strong. Regardless of LGCY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LGCY's net profit margin of -15.59% significantly underperformed when compared to the industry average.
- Currently the debt-to-equity ratio of 1.69 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, LGCY maintains a poor quick ratio of 0.75, which illustrates the inability to avoid short-term cash problems.
- You can view the full Legacy Reserves Ratings Report.
- SJT's very impressive revenue growth greatly exceeded the industry average of 1.5%. Since the same quarter one year prior, revenues leaped by 295.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- SJT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 2.84, which clearly demonstrates the ability to cover short-term cash needs.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, SAN JUAN BASIN ROYALTY TR's return on equity significantly exceeds that of both the industry average and the S&P 500.
- 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 314.9% when compared to the same quarter one year prior, rising from $3.40 million to $14.09 million.
- SAN JUAN BASIN ROYALTY TR reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. During the past fiscal year, SAN JUAN BASIN ROYALTY TR increased its bottom line by earning $0.78 versus $0.71 in the prior year.
- You can view the full San Juan Basin Royalty Ratings Report.
- Our dividend calendar.