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: 10.40% USA Compression Partners (NYSE: USAC) shares currently have a dividend yield of 10.40%. 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 32.83. The average volume for USA Compression Partners has been 97,400 shares per day over the past 30 days. USA Compression Partners has a market cap of $631.1 million and is part of the energy industry. Shares are up 23.3% year-to-date as of the close of trading on Friday. 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 27.50%, 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 4.07%.
- You can view the full USA Compression Partners Ratings Report.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 50.9% when compared to the same quarter one year ago, falling from -$1.99 million to -$3.00 million.
- NSLP'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 76.62%, 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. 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.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, NEW SOURCE ENERGY PRTRS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- NEW SOURCE ENERGY PRTRS LP has improved earnings per share by 22.7% 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, NEW SOURCE ENERGY PRTRS LP increased its bottom line by earning $2.92 versus $0.14 in the prior year. For the next year, the market is expecting a contraction of 128.6% in earnings (-$0.84 versus $2.92).
- 47.05% is the gross profit margin for NEW SOURCE ENERGY PRTRS LP which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -5.31% trails the industry average.
- You can view the full New Source Energy Partners Ratings Report.
- The debt-to-equity ratio is very high at 3.93 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, SDLP maintains a poor quick ratio of 0.88, which illustrates the inability to avoid short-term cash problems.
- Net operating cash flow has decreased to $169.50 million or 45.39% 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.
- 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 Energy Equipment & Services industry and the overall market on the basis of return on equity, SEADRILL PARTNERS LLC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- 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 59.34%, 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. 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.
- SEADRILL PARTNERS LLC's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SEADRILL PARTNERS LLC reported lower earnings of $1.76 versus $1.86 in the prior year. This year, the market expects an improvement in earnings ($2.69 versus $1.76).
- You can view the full Seadrill Partners Ratings Report.
- Our dividend calendar.