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 "Sell."American Midstream Partners Dividend Yield: 10.70% American Midstream Partners (NYSE: AMID) shares currently have a dividend yield of 10.70%. American Midstream Partners, LP is engaged in gathering, treating, processing, and transporting natural gas primarily in the Gulf Coast and Southeast regions of the United States. The average volume for American Midstream Partners has been 81,700 shares per day over the past 30 days. American Midstream Partners has a market cap of $278.6 million and is part of the energy industry. Shares are down 10.4% 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 American Midstream Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its poor profit margins and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- The gross profit margin for AMERICAN MIDSTREAM PRTNRS LP is currently extremely low, coming in at 7.85%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -3.49% is significantly below that of the industry average.
- AMID's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 34.31%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- 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, AMERICAN MIDSTREAM PRTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- AMID, with its decline in revenue, slightly underperformed the industry average of 6.5%. Since the same quarter one year prior, revenues slightly dropped by 9.3%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- AMID's debt-to-equity ratio is very low at 0.15 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.16 is very weak and demonstrates a lack of ability to pay short-term obligations.
- You can view the full American Midstream Partners Ratings Report.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 40.4% when compared to the same quarter one year ago, falling from $6.88 million to $4.10 million.
- The share price of ARES COMMERCIAL REAL ESTATE has not done very well: it is down 8.36% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- 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. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ARES COMMERCIAL REAL ESTATE's return on equity is below that of both the industry average and the S&P 500.
- ARES COMMERCIAL REAL ESTATE's earnings per share declined by 44.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ARES COMMERCIAL REAL ESTATE increased its bottom line by earning $0.73 versus $0.10 in the prior year. This year, the market expects an improvement in earnings ($0.81 versus $0.73).
- The gross profit margin for ARES COMMERCIAL REAL ESTATE is rather high; currently it is at 56.49%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 17.80% trails the industry average.
- You can view the full Ares Commercial Real Estate Ratings Report.
- ARCX has underperformed the S&P 500 Index, declining 17.36% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- The gross profit margin for ARC LOGISTICS PARTNERS LP is rather high; currently it is at 51.59%. Regardless of ARCX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ARCX's net profit margin of 11.94% compares favorably to the industry average.
- Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ARC LOGISTICS PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The current debt-to-equity ratio, 0.49, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, ARCX has a quick ratio of 1.84, which demonstrates the ability of the company to cover short-term liquidity needs.
- Net operating cash flow has improved to $4.14 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.
- You can view the full Arc Logistics Partners Ratings Report.
- Our dividend calendar.