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." KNOT Offshore Partners Dividend Yield: 8.80% KNOT Offshore Partners (NYSE: KNOP) shares currently have a dividend yield of 8.80%. KNOT Offshore Partners LP owns and operates shuttle tankers under long-term charters in the North Sea and Brazil. The company provides crude oil loading, transportation, and storage services under time charters and bareboat charters. The company has a P/E ratio of 21.84. The average volume for KNOT Offshore Partners has been 123,600 shares per day over the past 30 days. KNOT Offshore Partners has a market cap of $319.6 million and is part of the transportation industry. Shares are up 3.7% year-to-date as of the close of trading on Monday. 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 KNOT Offshore 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 and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- The debt-to-equity ratio of 1.46 is relatively high when compared with the industry average, suggesting a need for better debt level management.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, KNOT OFFSHORE PRTNRS LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, KNOP has underperformed the S&P 500 Index, declining 14.77% from its price level of one year ago. 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.
- KNOT OFFSHORE PRTNRS LP's earnings per share declined by 13.5% 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, KNOT OFFSHORE PRTNRS LP increased its bottom line by earning $1.34 versus $0.87 in the prior year. This year, the market expects an improvement in earnings ($1.77 versus $1.34).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 11.9% when compared to the same quarter one year prior, going from $6.42 million to $7.19 million.
- You can view the full KNOT Offshore Partners Ratings Report.