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." OCI Partners Dividend Yield: 7.60% OCI Partners (NYSE: OCIP) shares currently have a dividend yield of 7.60%. OCI Partners LP produces and sells methanol and ammonia in the United States. The company sells its products to industrial users and commercial traders for further processing or distribution. OCI GP LLC operates as the general partner of the company. The company has a P/E ratio of 11.69. The average volume for OCI Partners has been 44,200 shares per day over the past 30 days. OCI Partners has a market cap of $1.5 billion and is part of the chemicals industry. Shares are up 9% 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 OCI Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, 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 Chemicals industry. The net income has significantly decreased by 96.9% when compared to the same quarter one year ago, falling from $29.01 million to $0.89 million.
- The debt-to-equity ratio is very high at 2.58 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.30, which clearly demonstrates the inability to cover short-term cash needs.
- The gross profit margin for OCI PARTNERS LP is currently lower than what is desirable, coming in at 33.33%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 2.36% significantly trails the industry average.
- Net operating cash flow has significantly decreased to $13.99 million or 66.40% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The share price of OCI PARTNERS LP has not done very well: it is down 15.50% 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.
- You can view the full OCI Partners Ratings Report.