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."Northern Tier Energy (NYSE: NTI) shares currently have a dividend yield of 8.20%. Northern Tier Energy LP, an independent downstream energy company, is engaged in refining, retail, and pipeline operations in the United States. It operates through two segments, Refining and Retail. The company has a P/E ratio of 13.49. The average volume for Northern Tier Energy has been 484,600 shares per day over the past 30 days. Northern Tier Energy has a market cap of $2.4 billion and is part of the energy industry. Shares are up 4.1% year-to-date as of the close of trading on Friday. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more. TheStreet Ratings rates Northern Tier Energy as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and weak operating cash flow. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 2.4%. Since the same quarter one year prior, revenues rose by 41.4%. 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.
- The debt-to-equity ratio is somewhat low, currently at 0.66, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.85 is somewhat weak and could be cause for future problems.
- The gross profit margin for NORTHERN TIER ENERGY LP is currently extremely low, coming in at 6.95%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.86% trails that of the industry average.
- Net operating cash flow has decreased to $62.80 million or 23.97% 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 Northern Tier Energy Ratings Report.
- UFS's revenue growth has slightly outpaced the industry average of 2.2%. 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. Despite the mixed results of the gross profit margin, UFS's net profit margin of 2.88% compares favorably to the industry average.
- 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 DOMTAR CORP is still fairing well by exceeding its industry average cash flow growth rate of -28.44%.
- You can view the full Domtar Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 15.2%. Since the same quarter one year prior, revenues slightly increased by 7.6%. 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.
- QSII 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. To add to this, QSII has a quick ratio of 1.90, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for QUALITY SYSTEMS INC is rather high; currently it is at 57.93%. Regardless of QSII'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 4.37% trails the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Health Care Technology industry. The net income has significantly decreased by 60.1% when compared to the same quarter one year ago, falling from $12.95 million to $5.16 million.
- 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 Health Care Technology industry and the overall market on the basis of return on equity, QUALITY SYSTEMS INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full Quality Systems Ratings Report.
- Our dividend calendar.