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."LRR Energy Dividend Yield: 18.40% LRR Energy (NYSE: LRE) shares currently have a dividend yield of 18.40%. LRR Energy, L.P., through its subsidiary, LRE Operating, LLC, operates, acquires, exploits, and develops producing oil and natural gas properties in North America. The company has a P/E ratio of 5.37. The average volume for LRR Energy has been 207,000 shares per day over the past 30 days. LRR Energy has a market cap of $114.5 million and is part of the energy industry. Shares are down 40.3% 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 LRR Energy as a hold. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and poor profit margins. Highlights from the ratings report include:
- Net operating cash flow has increased to $20.31 million or 30.69% when compared to the same quarter last year. In addition, LRR ENERGY LP has also vastly surpassed the industry average cash flow growth rate of -19.81%.
- LRE, with its decline in revenue, slightly underperformed the industry average of 34.3%. Since the same quarter one year prior, revenues fell by 38.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 204.1% when compared to the same quarter one year ago, falling from -$7.34 million to -$22.31 million.
- Currently the debt-to-equity ratio of 1.86 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 the unfavorable debt-to-equity ratio, LRE maintains a poor quick ratio of 0.76, which illustrates the inability to avoid short-term cash problems.
- You can view the full LRR Energy Ratings Report.
- The revenue growth came in higher than the industry average of 6.8%. Since the same quarter one year prior, revenues rose by 34.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- WHITEHORSE FINANCE INC has improved earnings per share by 11.8% 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 two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, WHITEHORSE FINANCE INC increased its bottom line by earning $1.32 versus $1.26 in the prior year. This year, the market expects an improvement in earnings ($1.46 versus $1.32).
- WHF has underperformed the S&P 500 Index, declining 8.36% 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 has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Capital Markets industry and the overall market, WHITEHORSE FINANCE INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full WhiteHorse Finance Ratings Report.
- EVOL's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, EVOL has a quick ratio of 2.01, which demonstrates the ability of the company to cover short-term liquidity needs.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market, EVOLVING SYSTEMS INC's return on equity exceeds that of both the industry average and the S&P 500.
- EVOL, with its decline in revenue, underperformed when compared the industry average of 11.6%. Since the same quarter one year prior, revenues fell by 23.5%. The declining revenue appears to have seeped down to the company's 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 41.68%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 50.00% 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.
- Net operating cash flow has declined marginally to $0.31 million or 5.23% when compared to the same quarter last year. Despite a decrease in cash flow EVOLVING SYSTEMS INC is still fairing well by exceeding its industry average cash flow growth rate of -28.87%.
- You can view the full Evolving Systems Ratings Report.
- Our dividend calendar.