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." Seadrill Partners Dividend Yield: 17.40% Seadrill Partners (NYSE: SDLP) shares currently have a dividend yield of 17.40%. Seadrill Partners LLC owns, operates, and acquires offshore drilling units. The company primarily serves various oil and gas companies. As of March 31, 2015, its fleet consisted of four semi-submersible drilling rigs, three drillships, and three tender rigs. The company has a P/E ratio of 6.08. The average volume for Seadrill Partners has been 357,200 shares per day over the past 30 days. Seadrill Partners has a market cap of $984.6 million and is part of the energy industry. Shares are down 24.2% 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 Seadrill 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 is very high at 3.97 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, SDLP maintains a poor quick ratio of 0.96, which illustrates the inability to avoid short-term cash problems.
- 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. Compared to other companies in the Energy Equipment & Services industry and the overall market on the basis of return on equity, SEADRILL PARTNERS LLC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- SDLP'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 60.27%, 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.
- SEADRILL PARTNERS LLC has improved earnings per share by 35.5% 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, SEADRILL PARTNERS LLC reported lower earnings of $1.72 versus $1.86 in the prior year. This year, the market expects an improvement in earnings ($2.71 versus $1.72).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Energy Equipment & Services industry. The net income increased by 92.9% when compared to the same quarter one year prior, rising from $19.80 million to $38.20 million.
- You can view the full Seadrill Partners Ratings Report.