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."Spark Energy Dividend Yield: 8.30% Spark Energy (NASDAQ: SPKE) shares currently have a dividend yield of 8.30%. Spark Energy, Inc., through its subsidiaries, operates as an independent retail energy services company in the United States. It operates through two segments, Retail Natural Gas and Retail Electricity. The company has a P/E ratio of 22.33. The average volume for Spark Energy has been 26,000 shares per day over the past 30 days. Spark Energy has a market cap of $54.0 million and is part of the utilities industry. Shares are up 23.6% 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 Spark Energy as a sell. Among the areas we feel are negative, one of the most important has been poor profit margins. Highlights from the ratings report include:
- The gross profit margin for SPARK ENERGY INC is rather low; currently it is at 15.79%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, SPKE's net profit margin of 1.08% is significantly lower than the industry average.
- SPKE, with its decline in revenue, slightly underperformed the industry average of 0.1%. Since the same quarter one year prior, revenues slightly dropped by 0.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.84, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.85 is somewhat weak and could be cause for future problems.
- Compared to where it was a year ago today, the stock is now trading at a higher level, and has traded in line with the S&P 500. Regardless of the rise in share value over the previous year, we feel that the risks involved in investing in this stock do not compensate for any future upside potential.
- SPARK ENERGY INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.55 versus -$2.19).
- You can view the full Spark Energy Ratings Report.
- The gross profit margin for FULL CIRCLE CAPITAL CORP is currently lower than what is desirable, coming in at 33.67%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -34.61% is significantly below that of the industry average.
- FULL'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 46.36%, 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.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Capital Markets industry and the overall market, FULL CIRCLE CAPITAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly increased by 71.08% to -$6.95 million when compared to the same quarter last year. Despite an increase in cash flow of 71.08%, FULL CIRCLE CAPITAL CORP is still growing at a significantly lower rate than the industry average of 230.25%.
- FULL CIRCLE CAPITAL CORP reported significant earnings per share improvement 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, FULL CIRCLE CAPITAL CORP continued to lose money by earning -$0.41 versus -$0.83 in the prior year. This year, the market expects an improvement in earnings ($0.45 versus -$0.41).
- You can view the full Full Circle Capital Ratings Report.
- TRANSGLOBE ENERGY 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. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, TRANSGLOBE ENERGY CORP swung to a loss, reporting -$0.02 versus $0.57 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 Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 148.0% when compared to the same quarter one year ago, falling from $26.20 million to -$12.58 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 Oil, Gas & Consumable Fuels industry and the overall market, TRANSGLOBE ENERGY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $24.32 million or 27.32% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, TRANSGLOBE ENERGY CORP has marginally lower results.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 29.90%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 148.57% 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.
- You can view the full TransGlobe Energy Ratings Report.
- Our dividend calendar.