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." Scorpio Tankers (NYSE: STNG) shares currently have a dividend yield of 4.30%. Scorpio Tankers Inc., together with its subsidiaries, is engaged in the seaborne transportation of refined petroleum products and crude oil worldwide. The company has a P/E ratio of 31.20. The average volume for Scorpio Tankers has been 2,170,100 shares per day over the past 30 days. Scorpio Tankers has a market cap of $1.6 billion and is part of the conglomerates industry. Shares are down 20.6% year-to-date as of the close of trading on Friday. TheStreet Ratings rates Scorpio Tankers as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 2.1%. Since the same quarter one year prior, revenues rose by 11.5%. 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 344.09% to $13.33 million when compared to the same quarter last year. In addition, SCORPIO TANKERS INC has also vastly surpassed the industry average cash flow growth rate of -7.19%.
- STNG's debt-to-equity ratio of 0.61 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 4.67 is very high and demonstrates very strong liquidity.
- SCORPIO TANKERS INC 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, SCORPIO TANKERS INC turned its bottom line around by earning $0.14 versus -$0.65 in the prior year.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, SCORPIO TANKERS INC'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 Scorpio Tankers Ratings Report.