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."Frontier Communications Dividend Yield: 8.50% Frontier Communications (NASDAQ: FTR) shares currently have a dividend yield of 8.50%. Frontier Communications Corporation, a communications company, provides regulated and unregulated voice, data, and video services to residential, business, and wholesale customers in the United States. The average volume for Frontier Communications has been 18,188,700 shares per day over the past 30 days. Frontier Communications has a market cap of $5.7 billion and is part of the telecommunications industry. Shares are down 25.6% 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 Frontier Communications as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and generally higher debt management risk. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 9.3%. Since the same quarter one year prior, revenues rose by 24.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has increased to $345.00 million or 14.63% when compared to the same quarter last year. Despite an increase in cash flow, FRONTIER COMMUNICATIONS CORP's average is still marginally south of the industry average growth rate of 15.08%.
- 41.43% is the gross profit margin for FRONTIER COMMUNICATIONS CORP which we consider to be strong. Regardless of FTR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, FTR's net profit margin of -0.98% significantly underperformed when compared to the industry average.
- 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 Diversified Telecommunication Services industry. The net income has significantly decreased by 133.3% when compared to the same quarter one year ago, falling from $41.99 million to -$14.00 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 Diversified Telecommunication Services industry and the overall market, FRONTIER COMMUNICATIONS CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Frontier Communications Ratings Report.
- The gross profit margin for MARKWEST ENERGY PARTNERS LP is rather high; currently it is at 58.84%. It has increased significantly from the same period last year. Along with this, the net profit margin of 6.14% is above that of the industry average.
- Net operating cash flow has increased to $205.11 million or 47.28% when compared to the same quarter last year. In addition, MARKWEST ENERGY PARTNERS LP has also vastly surpassed the industry average cash flow growth rate of -25.83%.
- Despite the weak revenue results, MWE has outperformed against the industry average of 36.8%. Since the same quarter one year prior, revenues fell by 21.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- MWE's debt-to-equity ratio of 0.98 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that MWE's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.64 is low and demonstrates weak liquidity.
- 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 Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, MARKWEST ENERGY PARTNERS LP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full MarkWest Energy Partners Ratings Report.
- GENESIS ENERGY -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 year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, GENESIS ENERGY -LP increased its bottom line by earning $1.19 versus $1.00 in the prior year. This year, the market expects an improvement in earnings ($1.29 versus $1.19).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 1147.6% when compared to the same quarter one year prior, rising from $29.11 million to $363.21 million.
- The gross profit margin for GENESIS ENERGY -LP is rather low; currently it is at 19.37%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, GEL's net profit margin of 63.46% significantly outperformed against the industry.
- GEL has underperformed the S&P 500 Index, declining 17.84% from its price level of one year ago. 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.
- The debt-to-equity ratio of 1.38 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, GEL maintains a poor quick ratio of 0.79, which illustrates the inability to avoid short-term cash problems.
- You can view the full Genesis Energy Ratings Report.
- Our dividend calendar.