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."Alliance Resource Partners Dividend Yield: 18.40% Alliance Resource Partners (NASDAQ: ARLP) shares currently have a dividend yield of 18.40%. Alliance Resource Partners, L.P. produces and markets coal primarily to utilities and industrial users in the United States. It operates in two segments, Illinois Basin and Appalachia; and Other and Corporate. The company has a P/E ratio of 6.97. The average volume for Alliance Resource Partners has been 333,600 shares per day over the past 30 days. Alliance Resource Partners has a market cap of $1.1 billion and is part of the metals & mining industry. Shares are up 12.5% 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 Alliance Resource Partners as a hold. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations and notable return on equity. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, poor profit margins and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- Net operating cash flow has increased to $187.45 million or 22.66% when compared to the same quarter last year. In addition, ALLIANCE RESOURCE PTNRS -LP has also vastly surpassed the industry average cash flow growth rate of -38.88%.
- Despite the weak revenue results, ARLP has outperformed against the industry average of 34.2%. Since the same quarter one year prior, revenues slightly dropped by 8.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for ALLIANCE RESOURCE PTNRS -LP is rather low; currently it is at 20.72%. It has decreased significantly from the same period last year. Regardless of the weak results of the gross profit margin, the net profit margin of 3.96% is above that of the industry average.
- ALLIANCE RESOURCE PTNRS -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. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, ALLIANCE RESOURCE PTNRS -LP reported lower earnings of $2.10 versus $4.78 in the prior year. For the next year, the market is expecting a contraction of 12.9% in earnings ($1.83 versus $2.10).
- You can view the full Alliance Resource Partners Ratings Report.
- DKL, with its decline in revenue, slightly underperformed the industry average of 34.2%. Since the same quarter one year prior, revenues fell by 37.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for DELEK LOGISTICS PARTNERS LP is rather low; currently it is at 24.09%. Regardless of DKL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, DKL's net profit margin of 14.04% significantly outperformed against the industry.
- The change in net income from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has decreased by 24.2% when compared to the same quarter one year ago, dropping from $20.18 million to $15.30 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 29.18%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 32.09% 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.
- Net operating cash flow has significantly decreased to $1.26 million or 93.98% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Delek Logistics Partners Ratings Report.
- REDWOOD TRUST INC has improved earnings per share by 48.4% 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, REDWOOD TRUST INC increased its bottom line by earning $1.15 versus $1.13 in the prior year. This year, the market expects an improvement in earnings ($1.34 versus $1.15).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 51.4% when compared to the same quarter one year prior, rising from $27.12 million to $41.06 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, REDWOOD TRUST INC's return on equity is below that of both the industry average and the S&P 500.
- RWT'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 27.71%, 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.
- You can view the full Redwood Ratings Report.
- Our dividend calendar.