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: 11.10% American Midstream Partners (NYSE: AMID) shares currently have a dividend yield of 11.10%. American Midstream Partners, LP engages in gathering, treating, processing, and transporting natural gas, fractionating natural gas liquids (NGLs), and storing specialty chemical products in the Gulf Coast and Southeast regions of the United States. The average volume for American Midstream Partners has been 57,400 shares per day over the past 30 days. American Midstream Partners has a market cap of $388.9 million and is part of the energy industry. Shares are down 13.3% year-to-date as of the close of trading on Thursday. 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 American Midstream Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- 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 1571.0% when compared to the same quarter one year ago, falling from -$5.64 million to -$94.30 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. 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.
- The gross profit margin for AMERICAN MIDSTREAM PRTNRS LP is rather low; currently it is at 22.87%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, AMID's net profit margin of -117.61% significantly underperformed when compared to the industry average.
- Net operating cash flow has decreased to $3.24 million or 26.52% when compared to the same quarter last year. Despite a decrease in cash flow AMERICAN MIDSTREAM PRTNRS LP is still fairing well by exceeding its industry average cash flow growth rate of -42.26%.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 30.81%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 248.25% 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.
- You can view the full American Midstream Partners Ratings Report.