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."Transocean Partners Dividend Yield: 16.60% Transocean Partners (NYSE: RIGP) shares currently have a dividend yield of 16.60%. Transocean Partners LLC, together with its subsidiaries, acquires, owns, and operates offshore drilling rigs located in the United States Gulf of Mexico. As of February 17, 2015, the company's fleet consisted of one ultra-deepwater semisubmersible rig and two ultra-deepwater drillships. The average volume for Transocean Partners has been 132,400 shares per day over the past 30 days. Transocean Partners has a market cap of $361.2 million and is part of the energy industry. Shares are down 2% 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 Transocean Partners as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- TRANSOCEAN PARTNERS LLC 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. For the next year, the market is expecting a contraction of 0.8% in earnings ($1.24 versus $1.25).
- 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 Energy Equipment & Services industry. The net income has significantly decreased by 443.6% when compared to the same quarter one year ago, falling from $39.00 million to -$134.00 million.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 37.64%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 876.00% compared to 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.
- 41.60% is the gross profit margin for TRANSOCEAN PARTNERS LLC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, RIGP's net profit margin of -107.20% significantly underperformed when compared to the industry average.
- Despite the weak revenue results, RIGP has outperformed against the industry average of 30.9%. Since the same quarter one year prior, revenues slightly dropped by 8.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full Transocean Partners Ratings Report.
- Net operating cash flow has decreased to $12.74 million or 10.77% 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.
- UDF'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 28.75%, 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.
- When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, UNITED DEV FUNDING IV's return on equity is below that of both the industry average and the S&P 500.
- The gross profit margin for UNITED DEV FUNDING IV is rather high; currently it is at 62.04%. Regardless of UDF's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, UDF's net profit margin of 52.43% significantly outperformed against the industry.
- You can view the full United Development Funding IV 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 721.7% when compared to the same quarter one year ago, falling from -$3.11 million to -$25.51 million.
- Net operating cash flow has decreased to $44.81 million or 11.45% 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 gross profit margin for RENTECH NITROGEN PARTNERS LP is currently lower than what is desirable, coming in at 30.29%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, RNF's net profit margin of -30.25% significantly underperformed when compared to the industry average.
- 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).
- Looking at where the stock is today compared to one year ago, we find that it is higher, and it has outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. 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 Rentech Nitrogen Partners Ratings Report.
- Our dividend calendar.