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." SunCoke Energy Dividend Yield: 14.20% SunCoke Energy (NYSE: SXC) shares currently have a dividend yield of 14.20%. SunCoke Energy, Inc. operates as an independent producer of coke in the Americas. The company offers metallurgical and thermal coal for use as a raw material in the blast furnace steelmaking process. It also provides coal handling and blending services. The average volume for SunCoke Energy has been 1,074,200 shares per day over the past 30 days. SunCoke Energy has a market cap of $270.0 million and is part of the metals & mining industry. Shares are down 79.7% 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 SunCoke Energy as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally high debt management risk. Highlights from the ratings report include:
- 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 Metals & Mining industry. The net income has significantly decreased by 552.8% when compared to the same quarter one year ago, falling from -$3.60 million to -$23.50 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 Metals & Mining industry and the overall market, SUNCOKE ENERGY INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for SUNCOKE ENERGY INC is rather low; currently it is at 20.96%. It has decreased from the same quarter the previous year.
- Net operating cash flow has significantly decreased to $6.40 million or 80.66% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- The debt-to-equity ratio is very high at 3.56 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, SXC's quick ratio is somewhat strong at 1.14, demonstrating the ability to handle short-term liquidity needs.
- You can view the full SunCoke Energy 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 Chemicals industry. The net income has significantly decreased by 641.9% when compared to the same quarter one year ago, falling from -$8.92 million to -$66.21 million.
- The share price of RENTECH NITROGEN PARTNERS LP has not done very well: it is down 10.35% 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. 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.
- RENTECH NITROGEN PARTNERS LP 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. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, RENTECH NITROGEN PARTNERS LP swung to a loss, reporting -$0.03 versus $0.10 in the prior year. This year, the market expects an improvement in earnings ($1.75 versus -$0.03).
- Despite the weak revenue results, RNF has outperformed against the industry average of 19.3%. Since the same quarter one year prior, revenues slightly dropped by 3.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 43.56% is the gross profit margin for RENTECH NITROGEN PARTNERS LP which we consider to be strong. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -60.27% is in-line with the industry average.
- You can view the full Rentech Nitrogen Partners Ratings Report.
- The debt-to-equity ratio is very high at 4.05 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.36, which clearly demonstrates the inability to cover short-term cash needs.
- The gross profit margin for SPRAGUE RESOURCES LP is currently extremely low, coming in at 7.46%. Regardless of SRLP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, SRLP's net profit margin of 1.53% compares favorably to the industry average.
- SPRAGUE RESOURCES LP 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 two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, SPRAGUE RESOURCES LP turned its bottom line around by earning $6.07 versus -$1.25 in the prior year. For the next year, the market is expecting a contraction of 44.0% in earnings ($3.40 versus $6.07).
- SRLP, with its decline in revenue, slightly underperformed the industry average of 36.8%. Since the same quarter one year prior, revenues fell by 37.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- After a year of stock price fluctuations, the net result is that SRLP's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- You can view the full Sprague Resources Ratings Report.
- Our dividend calendar.