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."USA Compression Partners Dividend Yield: 10.50% USA Compression Partners (NYSE: USAC) shares currently have a dividend yield of 10.50%. USA Compression Partners, LP provides natural gas compression services under term contracts with customers in the oil and gas industry in the United States. It engineers, designs, operates, services, and repairs its compression units and maintains related support inventory and equipment. The company has a P/E ratio of 32.45. The average volume for USA Compression Partners has been 104,400 shares per day over the past 30 days. USA Compression Partners has a market cap of $623.7 million and is part of the energy industry. Shares are up 18% year-to-date as of the close of trading on Wednesday. EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he thinks could be potential winners. Click here to see his holdings for 14-days FREE. TheStreet Ratings rates USA Compression Partners as a sell. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- USAC'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 29.24%, 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. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, USAC is still more expensive than most of the other companies in its industry.
- USA COMPRESSION PRTNRS LP 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 two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, USA COMPRESSION PRTNRS LP increased its bottom line by earning $0.58 versus $0.32 in the prior year. For the next year, the market is expecting a contraction of 8.6% in earnings ($0.53 versus $0.58).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Energy Equipment & Services industry. The net income increased by 91.6% when compared to the same quarter one year prior, rising from $4.44 million to $8.50 million.
- The gross profit margin for USA COMPRESSION PRTNRS LP is rather high; currently it is at 69.03%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 13.93% significantly outperformed against the industry average.
- Net operating cash flow has increased to $31.29 million or 18.02% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 3.92%.
- You can view the full USA Compression Partners Ratings Report.
- ARCX has underperformed the S&P 500 Index, declining 7.26% 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.
- Looking at the price performance of SDLP's shares over the past 12 months, there is not much good news to report: the stock is down 53.09%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- 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. In comparison to the other companies in the Energy Equipment & Services industry and the overall market, SEADRILL PARTNERS LLC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Currently the debt-to-equity ratio of 1.76 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Even though the debt-to-equity ratio is weak, SDLP's quick ratio is somewhat strong at 1.43, demonstrating the ability to handle short-term liquidity needs.
- SEADRILL PARTNERS LLC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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, SEADRILL PARTNERS LLC increased its bottom line by earning $1.70 versus $1.52 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus $1.70).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Energy Equipment & Services industry. The net income increased by 112.6% when compared to the same quarter one year prior, rising from $25.40 million to $54.00 million.
- You can view the full Seadrill Partners Ratings Report.
- Our dividend calendar.