What To Hold: 3 Hold-Rated Dividend Stocks STM, OKS, FTR

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer

TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.

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 "Hold."

STMicroelectronics

Dividend Yield: 4.80%

STMicroelectronics (NYSE: STM) shares currently have a dividend yield of 4.80%.

STMicroelectronics N.V. designs, develops, manufactures, and markets various semiconductor integrated circuits and discrete devices worldwide. The company has a P/E ratio of 60.14.

The average volume for STMicroelectronics has been 1,261,300 shares per day over the past 30 days. STMicroelectronics has a market cap of $7.4 billion and is part of the electronics industry. Shares are up 12.6% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates STMicroelectronics as a hold. The company's strengths can be seen in multiple areas, such as its increase in net income, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year.

Highlights from the ratings report include:
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Semiconductors & Semiconductor Equipment industry average. The net income increased by 8.3% when compared to the same quarter one year prior, going from -$24.00 million to -$22.00 million.
  • The current debt-to-equity ratio, 0.38, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, STM has a quick ratio of 1.79, which demonstrates the ability of the company to cover short-term liquidity needs.
  • STMICROELECTRONICS NV reported flat earnings per share in the most recent quarter. 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, STMICROELECTRONICS NV turned its bottom line around by earning $0.14 versus -$0.56 in the prior year. This year, the market expects an improvement in earnings ($0.26 versus $0.14).
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, STMICROELECTRONICS NV's return on equity significantly trails that of both the industry average and the S&P 500.
  • STM has underperformed the S&P 500 Index, declining 10.84% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.

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ONEOK Partners

Dividend Yield: 8.50%

ONEOK Partners (NYSE: OKS) shares currently have a dividend yield of 8.50%.

ONEOK Partners, L.P. engages in the gathering, processing, storage, and transportation of natural gas in the United States. It operates in three segments: Natural Gas Gathering and Processing; Natural Gas Liquids; and Natural Gas Pipelines. The company has a P/E ratio of 21.47.

The average volume for ONEOK Partners has been 948,700 shares per day over the past 30 days. ONEOK Partners has a market cap of $6.8 billion and is part of the energy industry. Shares are down 6.9% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates ONEOK Partners as a hold. Among the primary strengths of the company is its reasonable valuation levels, considering its current price compared to earnings, book value and other measures. At the same time, however, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and generally higher debt management risk.

Highlights from the ratings report include:
  • OKS, with its decline in revenue, slightly underperformed the industry average of 38.5%. Since the same quarter one year prior, revenues fell by 42.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for ONEOK PARTNERS -LP is rather low; currently it is at 15.67%. Regardless of OKS's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, OKS's net profit margin of 8.06% compares favorably to the industry average.
  • 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, ONEOK PARTNERS -LP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • Net operating cash flow has significantly decreased to $65.12 million or 85.81% 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.

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Frontier Communications

Dividend Yield: 8.40%

Frontier Communications (NASDAQ: FTR) shares currently have a dividend yield of 8.40%.

Frontier Communications Corporation, a communications company, provides regulated and unregulated voice, data, and video services to residential, business, and wholesale customers in the United States. The company has a P/E ratio of 124.50.

The average volume for Frontier Communications has been 19,114,200 shares per day over the past 30 days. Frontier Communications has a market cap of $5.0 billion and is part of the telecommunications industry. Shares are down 24.9% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates Frontier Communications as a hold. The company's strengths can be seen in multiple areas, such as its revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 2.2%. Since the same quarter one year prior, revenues rose by 18.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • 40.92% is the gross profit margin for FRONTIER COMMUNICATIONS CORP which we consider to be strong. Regardless of FTR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, FTR's net profit margin of -3.71% significantly underperformed when compared to the industry average.
  • FRONTIER COMMUNICATIONS 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. Stable earnings per share over the past two years indicate the company has managed its earnings and share float. We anticipate this stability to falter in the coming year and, in turn, the company to deliver lower earnings per share than the prior full year. During the past fiscal year, FRONTIER COMMUNICATIONS CORP increased its bottom line by earning $0.13 versus $0.12 in the prior year. For the next year, the market is expecting a contraction of 23.1% in earnings ($0.10 versus $0.13).
  • Net operating cash flow has decreased to $249.00 million or 20.41% 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.
  • The share price of FRONTIER COMMUNICATIONS CORP has not done very well: it is down 15.12% 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. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.

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