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."Rentech Nitrogen Partners Dividend Yield: 8.00% Rentech Nitrogen Partners (NYSE: RNF) shares currently have a dividend yield of 8.00%. Rentech Nitrogen Partners, L.P. manufactures and sells nitrogen fertilizer products in the United States and internationally. The company operates in two segments, East Dubuque and Pasadena. The average volume for Rentech Nitrogen Partners has been 119,600 shares per day over the past 30 days. Rentech Nitrogen Partners has a market cap of $580.1 million and is part of the chemicals industry. Shares are up 45.7% year-to-date as of the close of trading on Tuesday. 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 Rentech Nitrogen Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- The debt-to-equity ratio is very high at 62.14 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, RNF has a quick ratio of 0.66, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- 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 Chemicals industry and the overall market, RENTECH NITROGEN PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for RENTECH NITROGEN PARTNERS LP is rather low; currently it is at 17.20%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -3.68% is significantly below that of the industry average.
- RNF has underperformed the S&P 500 Index, declining 18.50% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- RNF, with its decline in revenue, slightly underperformed the industry average of 4.8%. Since the same quarter one year prior, revenues slightly dropped by 9.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full Rentech Nitrogen Partners Ratings Report.
- TRANSGLOBE ENERGY CORP 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 reported a trend of declining earnings per share over the past two years. During the past fiscal year, TRANSGLOBE ENERGY CORP swung to a loss, reporting -$0.02 versus $0.57 in the prior year.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 833.6% when compared to the same quarter one year ago, falling from $6.89 million to -$50.57 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, TRANSGLOBE ENERGY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 60.69%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 955.55% compared to the year-earlier 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.
- TGA, with its decline in revenue, underperformed when compared the industry average of 19.6%. Since the same quarter one year prior, revenues fell by 35.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full TransGlobe Energy 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 14.69% 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 ($1.09 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. Despite the strong results of the gross profit margin, ACRE's net profit margin of 17.80% significantly trails the industry average.
- You can view the full Ares Commercial Real Estate Ratings Report.
- Our dividend calendar.