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: 13.00% Transocean Partners (NYSE: RIGP) shares currently have a dividend yield of 13.00%. Transocean Partners LLC, together with its subsidiaries, operates as an offshore drilling contractor in the United States Gulf of Mexico. The company acquires, owns, and operates offshore drilling rigs. The company has a P/E ratio of 10.91. The average volume for Transocean Partners has been 166,300 shares per day over the past 30 days. Transocean Partners has a market cap of $764.2 million and is part of the energy industry. Shares are up 28.6% 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. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- RIGP'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 27.67%, 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.
- TRANSOCEAN PARTNERS LLC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, TRANSOCEAN PARTNERS LLC swung to a loss, reporting -$1.03 versus $1.25 in the prior year. This year, the market expects an improvement in earnings ($1.92 versus -$1.03).
- Compared to other companies in the Energy Equipment & Services industry and the overall market on the basis of return on equity, TRANSOCEAN PARTNERS LLC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for TRANSOCEAN PARTNERS LLC is rather high; currently it is at 64.94%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 22.07% significantly outperformed against the industry average.
- Net operating cash flow has increased to $68.00 million or 38.77% when compared to the same quarter last year. In addition, TRANSOCEAN PARTNERS LLC has also vastly surpassed the industry average cash flow growth rate of -86.93%.
- You can view the full Transocean Partners Ratings Report.
- MVC CAPITAL INC 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 suffered a declining pattern earnings per share over the past two years. During the past fiscal year, MVC CAPITAL INC swung to a loss, reporting -$0.88 versus $0.82 in the prior year.
- 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 Capital Markets industry. The net income has significantly decreased by 903.2% when compared to the same quarter one year ago, falling from $1.74 million to -$13.96 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Capital Markets industry and the overall market, MVC CAPITAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $11.38 million or 89.73% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The share price of MVC CAPITAL INC has not done very well: it is down 22.66% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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.
- You can view the full MVC Capital Ratings Report.
- The gross profit margin for INDEPENDENCE REALTY TRUST is rather low; currently it is at 22.15%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 10.38% significantly trails the industry average.
- IRT has underperformed the S&P 500 Index, declining 23.93% 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.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, INDEPENDENCE REALTY TRUST's return on equity is below that of both the industry average and the S&P 500.
- INDEPENDENCE REALTY TRUST 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, INDEPENDENCE REALTY TRUST increased its bottom line by earning $0.80 versus $0.19 in the prior year. For the next year, the market is expecting a contraction of 55.6% in earnings ($0.36 versus $0.80).
- 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 2081.5% when compared to the same quarter one year prior, rising from $0.19 million to $4.12 million.
- You can view the full Independence Realty Ratings Report.
- Our dividend calendar.