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: 8.60% Sprague Resources (NYSE: SRLP) shares currently have a dividend yield of 8.60%. 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 8.36. The average volume for Sprague Resources has been 33,700 shares per day over the past 30 days. Sprague Resources has a market cap of $529.0 million and is part of the energy industry. Shares are up 22.8% year-to-date as of the close of trading on Friday. 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 feeble growth in its earnings per share, generally high debt management risk, generally disappointing historical performance in the stock itself, weak operating cash flow and poor profit margins. Highlights from the ratings report include:
- SPRAGUE RESOURCES LP's earnings per share declined by 33.2% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, SPRAGUE RESOURCES LP reported lower earnings of $3.69 versus $6.07 in the prior year. For the next year, the market is expecting a contraction of 32.4% in earnings ($2.50 versus $3.69).
- The debt-to-equity ratio is very high at 3.00 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, SRLP maintains a poor quick ratio of 0.75, which illustrates the inability to avoid short-term cash problems.
- In its most recent trading session, SRLP has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
- Net operating cash flow has declined marginally to $116.43 million or 4.88% when compared to the same quarter last year. Despite a decrease in cash flow SPRAGUE RESOURCES LP is still fairing well by exceeding its industry average cash flow growth rate of -49.98%.
- The gross profit margin for SPRAGUE RESOURCES LP is currently extremely low, coming in at 9.19%. 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 4.12% compares favorably to the industry average.
- You can view the full Sprague Resources Ratings Report.
- NORDIC AMERICAN OFFSHORE 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 year. We anticipate that this should continue in the coming year. During the past fiscal year, NORDIC AMERICAN OFFSHORE swung to a loss, reporting -$0.46 versus $0.31 in the prior year. For the next year, the market is expecting a contraction of 172.8% in earnings (-$1.26 versus -$0.46).
- Net operating cash flow has significantly decreased to -$3.28 million or 393.67% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much 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 41.30%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 150.00% 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.
- 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 Energy Equipment & Services industry and the overall market on the basis of return on equity, NORDIC AMERICAN OFFSHORE has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- The change in net income from the same quarter one year ago has significantly exceeded that of the Energy Equipment & Services industry average, but is less than that of the S&P 500. The net income has significantly decreased by 117.6% when compared to the same quarter one year ago, falling from -$2.89 million to -$6.29 million.
- You can view the full Nordic American Offshore Ratings Report.
- OHA INVESTMENT CORP 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. During the past fiscal year, OHA INVESTMENT CORP reported poor results of -$1.54 versus -$1.08 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 518.8% when compared to the same quarter one year ago, falling from -$1.89 million to -$11.66 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, OHA INVESTMENT CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 56.30%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 544.44% 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.
- The gross profit margin for OHA INVESTMENT CORP is rather high; currently it is at 57.01%. Regardless of OHAI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, OHAI's net profit margin of -226.17% significantly underperformed when compared to the industry average.
- You can view the full OHA Investment Ratings Report.
- Our dividend calendar.