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."Sprague Resources Dividend Yield: 9.90% Sprague Resources (NYSE: SRLP) shares currently have a dividend yield of 9.90%. Sprague Resources LP engages in the purchase, storage, distribution, and sale of refined petroleum products and natural gas in the United States. The company operates through four segments: Refined Products, Natural Gas, Materials Handling, and Other Operations. The company has a P/E ratio of 3.73. The average volume for Sprague Resources has been 28,800 shares per day over the past 30 days. Sprague Resources has a market cap of $223.3 million and is part of the energy industry. Shares are down 13.3% year-to-date as of the close of trading on Tuesday. 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 Sprague Resources as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, generally disappointing historical performance in the stock itself and poor profit margins. Highlights from the ratings report include:
- 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.
- SRLP has underperformed the S&P 500 Index, declining 12.95% from its price level of one year ago. 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.
- 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.
- 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.
- 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 44.4% in earnings ($3.38 versus $6.07).
- You can view the full Sprague Resources Ratings Report.
- NEW SENIOR INVESTMENT GROUP's earnings per share declined by 23.5% in the most recent quarter compared to the same quarter a year ago. For the next year, the market is expecting a contraction of 181.1% in earnings (-$1.04 versus -$0.37).
- 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 61.0% when compared to the same quarter one year ago, falling from -$11.15 million to -$17.96 million.
- The gross profit margin for NEW SENIOR INVESTMENT GROUP is currently lower than what is desirable, coming in at 27.74%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -17.10% is significantly below that of the industry average.
- Looking at the price performance of SNR's shares over the past 12 months, there is not much good news to report: the stock is down 40.08%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter.
- Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, NEW SENIOR INVESTMENT GROUP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full New Senior Investment Group 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 the Communications Equipment industry average. The net income has decreased by 24.3% when compared to the same quarter one year ago, dropping from $1.70 million to $1.28 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 Communications Equipment industry and the overall market, COMMUNICATIONS SYSTEMS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for COMMUNICATIONS SYSTEMS INC is currently lower than what is desirable, coming in at 34.86%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.98% significantly trails the industry average.
- Net operating cash flow has significantly decreased to $0.20 million or 94.35% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Looking at the price performance of JCS's shares over the past 12 months, there is not much good news to report: the stock is down 28.30%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. 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 Communications Systems Ratings Report.
- Our dividend calendar.