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."USA Compression Partners Dividend Yield: 17.90% USA Compression Partners (NYSE: USAC) shares currently have a dividend yield of 17.90%. USA Compression Partners, LP provides natural gas compression services under term contracts with customers in the oil and gas industry in the United States. It engineers, designs, operates, services, and repairs its compression units and maintains related support inventory and equipment. The company has a P/E ratio of 37.81. The average volume for USA Compression Partners has been 190,000 shares per day over the past 30 days. USA Compression Partners has a market cap of $440.6 million and is part of the energy industry. Shares are down 35.9% 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 USA Compression Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself, disappointing return on equity, weak operating cash flow and generally high debt management risk. Highlights from the ratings report include:
- USAC'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 29.84%, 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. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, USAC is still more expensive than most of the other companies in its industry.
- 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 Energy Equipment & Services industry and the overall market on the basis of return on equity, USA COMPRESSION PRTNRS LP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- USAC's debt-to-equity ratio of 0.80 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. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.47 is very low and demonstrates very weak liquidity.
- Net operating cash flow has decreased to $34.19 million or 12.17% when compared to the same quarter last year. Despite a decrease in cash flow of 12.17%, USA COMPRESSION PRTNRS LP is in line with the industry average cash flow growth rate of -18.43%.
- The gross profit margin for USA COMPRESSION PRTNRS LP is rather high; currently it is at 68.93%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 13.89% is above that of the industry average.
- You can view the full USA Compression Partners Ratings Report.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Real Estate Investment Trusts (REITs) industry average. The net income has significantly decreased by 35.0% when compared to the same quarter one year ago, falling from $32.39 million to $21.07 million.
- 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 Real Estate Investment Trusts (REITs) industry and the overall market, CAPSTEAD MORTGAGE CORP's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has declined marginally to $55.06 million or 3.12% 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.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 26.88%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 40.00% 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.
- CAPSTEAD MORTGAGE CORP's earnings per share declined by 40.0% in the most recent quarter compared to 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, CAPSTEAD MORTGAGE CORP increased its bottom line by earning $1.33 versus $0.93 in the prior year. For the next year, the market is expecting a contraction of 28.6% in earnings ($0.95 versus $1.33).
- You can view the full Capstead Mortgage Ratings Report.
- Currently the debt-to-equity ratio of 1.98 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Even though the debt-to-equity ratio is weak, USDP's quick ratio is somewhat strong at 1.38, demonstrating the ability to handle short-term liquidity needs.
- USDP'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 45.24%, 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.
- USD PARTNERS LP 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 ($0.86 versus -$0.12).
- 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 564.4% when compared to the same quarter one year prior, rising from -$1.36 million to $6.33 million.
- The gross profit margin for USD PARTNERS LP is rather high; currently it is at 54.01%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 29.01% significantly outperformed against the industry average.
- You can view the full USD Partners Ratings Report.
- Our dividend calendar.