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." Mesa Royalty Dividend Yield: 7.20% Mesa Royalty (NYSE: MTR) shares currently have a dividend yield of 7.20%. Mesa Royalty Trust holds net overriding royalty interests in various oil and gas properties in the United States. It has interests in properties located in the Hugoton field of Kansas; the San Juan Basin field of New Mexico and Colorado; and the Yellow Creek field of Wyoming. The company has a P/E ratio of 4.32. The average volume for Mesa Royalty has been 5,700 shares per day over the past 30 days. Mesa Royalty has a market cap of $27.5 million and is part of the financial services industry. Shares are down 41.2% year-to-date as of the close of trading on Tuesday. 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 Mesa Royalty as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- MTR has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 6.12, which clearly demonstrates the ability to cover short-term cash needs.
- 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, MESA ROYALTY TRUST's return on equity significantly exceeds that of both the industry average and the S&P 500.
- 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 36.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 50.69%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 46.87% compared to the year-earlier 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.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 48.0% when compared to the same quarter one year ago, falling from $1.20 million to $0.63 million.
- You can view the full Mesa Royalty Ratings Report.
- 39.23% is the gross profit margin for BLUEKNIGHT ENERGY PRTNRS LP which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 3.72% trails the industry average.
- Despite the weak revenue results, BKEP has outperformed against the industry average of 38.7%. Since the same quarter one year prior, revenues slightly dropped by 8.8%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Net operating cash flow has decreased to $4.08 million or 34.37% when compared to the same quarter last year. Despite a decrease in cash flow BLUEKNIGHT ENERGY PRTNRS LP is still fairing well by exceeding its industry average cash flow growth rate of -53.29%.
- 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, BLUEKNIGHT ENERGY PRTNRS LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The share price of BLUEKNIGHT ENERGY PRTNRS LP has not done very well: it is down 14.65% 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.
- You can view the full Blueknight Energy Partners Ratings Report.
- The revenue growth greatly exceeded the industry average of 38.7%. Since the same quarter one year prior, revenues slightly increased by 1.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- DOM has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign.
- DOMINION RES BLACK WARRIOR has improved earnings per share by 6.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. During the past fiscal year, DOMINION RES BLACK WARRIOR increased its bottom line by earning $0.74 versus $0.70 in the prior year.
- The gross profit margin for DOMINION RES BLACK WARRIOR is currently very high, coming in at 100.00%. DOM has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, DOM's net profit margin of 84.07% significantly outperformed against the industry.
- DOM'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 37.30%, 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.
- You can view the full Dominion Resources Black Warrior Ratings Report.
- Our dividend calendar.