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."Transocean Partners Dividend Yield: 12.50% Transocean Partners (NYSE: RIGP) shares currently have a dividend yield of 12.50%. Transocean Partners LLC, together with its subsidiaries, acquires, owns, and operates offshore drilling rigs located in the United States Gulf of Mexico. As of February 17, 2015, the company's fleet consisted of one ultra-deepwater semisubmersible rig and two ultra-deepwater drillships. The company has a P/E ratio of 12.19. The average volume for Transocean Partners has been 163,500 shares per day over the past 30 days. Transocean Partners has a market cap of $479.2 million and is part of the energy industry. Shares are down 22.5% year-to-date as of the close of trading on Wednesday. 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 Transocean Partners as a sell. The area that we feel has been the company's primary weakness has been its feeble growth in its earnings per share. Highlights from the ratings report include:
- The change in net income from the same quarter one year ago has significantly exceeded that of the Energy Equipment & Services industry average, but is less than that of the S&P 500. The net income has significantly decreased by 30.0% when compared to the same quarter one year ago, falling from $50.00 million to $35.00 million.
- TRANSOCEAN PARTNERS LLC's earnings per share declined by 29.2% in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.44 versus $1.25).
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 46.48%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 29.16% compared to the year-earlier quarter.
- In comparison to the other companies in the Energy Equipment & Services industry and the overall market, TRANSOCEAN PARTNERS LLC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full Transocean Partners Ratings Report.
- 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 238.0% when compared to the same quarter one year ago, falling from $18.04 million to -$24.90 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, RESOURCE CAPITAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 34.53%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 318.18% 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.
- RESOURCE CAPITAL 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. 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, RESOURCE CAPITAL CORP increased its bottom line by earning $1.36 versus $1.32 in the prior year. For the next year, the market is expecting a contraction of 91.2% in earnings ($0.12 versus $1.36).
- Net operating cash flow has significantly increased by 727.08% to $33.11 million when compared to the same quarter last year. In addition, RESOURCE CAPITAL CORP has also vastly surpassed the industry average cash flow growth rate of 16.24%.
- You can view the full Resource Capital Ratings Report.
- OHA INVESTMENT CORP's earnings have gone downhill when comparing its most recently reported quarter with the same quarter a year earlier. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, OHA INVESTMENT CORP swung to a loss, reporting -$1.08 versus $0.19 in the prior year.
- 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 Capital Markets industry. The net income has significantly decreased by 1412.5% when compared to the same quarter one year ago, falling from -$0.03 million to -$0.48 million.
- 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 Capital Markets industry and the overall market, OHA INVESTMENT CORP'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 -$6.27 million or 130.73% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- This stock's share value has moved by only 25.00% over the past year. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- You can view the full OHA Investment Ratings Report.
- Our dividend calendar.