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." Atlas Resource Partners Dividend Yield: 18.20% Atlas Resource Partners (NYSE: ARP) shares currently have a dividend yield of 18.20%. Atlas Resource Partners, L.P. operates as an independent developer and producer of natural gas, crude oil, and natural gas liquids in the United States. The company operates in three segments: Gas and Oil Production, Well Construction and Completion, and Other Partnership Management. The average volume for Atlas Resource Partners has been 750,200 shares per day over the past 30 days. Atlas Resource Partners has a market cap of $623.5 million and is part of the energy industry. Shares are down 33.8% year-to-date as of the close of trading on Friday. 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 Atlas Resource 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, weak operating cash flow and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- Currently the debt-to-equity ratio of 1.61 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.47, which clearly demonstrates the inability to cover short-term cash needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ATLAS RESOURCE PARTNERS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$10.84 million or 147.78% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- ARP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 64.40%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
- ATLAS RESOURCE PARTNERS LP reported significant earnings per share improvement 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, ATLAS RESOURCE PARTNERS LP reported poor results of -$7.79 versus -$1.88 in the prior year. This year, the market expects an improvement in earnings (-$0.51 versus -$7.79).
- You can view the full Atlas Resource Partners Ratings Report.
- Net operating cash flow has significantly decreased to $1.22 million or 81.07% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- EARN has underperformed the S&P 500 Index, declining 10.77% 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.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ELLINGTON RESIDENTIAL MTG's return on equity is below that of both the industry average and the S&P 500.
- EARN, with its decline in revenue, underperformed when compared the industry average of 8.4%. Since the same quarter one year prior, revenues fell by 14.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for ELLINGTON RESIDENTIAL MTG is currently very high, coming in at 86.23%. Regardless of EARN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EARN's net profit margin of 35.76% compares favorably to the industry average.
- You can view the full Ellington Residential Mortgage REIT Ratings Report.
- The change in net income from the same quarter one year ago has exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has significantly decreased by 38.9% when compared to the same quarter one year ago, falling from $149.00 million to $91.00 million.
- The gross profit margin for ENABLE MIDSTREAM PARTNERS LP is currently lower than what is desirable, coming in at 28.73%. Regardless of ENBL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, ENBL's net profit margin of 14.77% compares favorably to the industry average.
- ENABLE MIDSTREAM PARTNERS LP's earnings per share declined by 38.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, ENABLE MIDSTREAM PARTNERS LP increased its bottom line by earning $1.27 versus $0.28 in the prior year. For the next year, the market is expecting a contraction of 27.6% in earnings ($0.92 versus $1.27).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 38.7%. Since the same quarter one year prior, revenues fell by 38.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The current debt-to-equity ratio, 0.31, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.34 is very weak and demonstrates a lack of ability to pay short-term obligations.
- You can view the full Enable Midstream Partners Ratings Report.
- Our dividend calendar.