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." Enerplus Dividend Yield: 4.90% Enerplus (NYSE: ERF) shares currently have a dividend yield of 4.90%. Enerplus Corporation, together with subsidiaries, engages in the exploration and development of crude oil and natural gas in the United States and Canada. The average volume for Enerplus has been 1,150,500 shares per day over the past 30 days. Enerplus has a market cap of $2.0 billion and is part of the energy industry. Shares are down 0.7% 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 Enerplus as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, 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 832.3% when compared to the same quarter one year ago, falling from $40.04 million to -$293.21 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, ENERPLUS CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has declined marginally to $131.10 million or 6.63% when compared to the same quarter last year. Despite a decrease in cash flow ENERPLUS CORP is still fairing well by exceeding its industry average cash flow growth rate of -53.17%.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 57.46%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 847.36% compared to the year-earlier 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.
- ENERPLUS 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. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, ENERPLUS CORP increased its bottom line by earning $1.43 versus $0.23 in the prior year.
- You can view the full Enerplus Ratings Report.