TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.

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."

Arlington Asset Investment

Dividend Yield: 16.90%

Arlington Asset Investment

(NYSE:

AI

) shares currently have a dividend yield of 16.90%.

Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets.

The average volume for Arlington Asset Investment has been 279,200 shares per day over the past 30 days. Arlington Asset Investment has a market cap of $337.1 million and is part of the real estate industry. Shares are down 48.8% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Arlington Asset Investment

as a

hold

. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:

  • Net operating cash flow has significantly increased by 108.49% to $23.99 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 65.52%.
  • The gross profit margin for ARLINGTON ASSET INVESTMENT is currently very high, coming in at 81.45%. Regardless of AI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AI's net profit margin of 31.95% significantly outperformed against the industry.
  • The revenue fell significantly faster than the industry average of 5.1%. Since the same quarter one year prior, revenues fell by 45.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • 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 65.0% when compared to the same quarter one year ago, falling from $18.84 million to $6.60 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, ARLINGTON ASSET INVESTMENT's return on equity significantly trails that of both the industry average and the S&P 500.

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KCAP Financial

Dividend Yield: 16.70%

KCAP Financial

(NASDAQ:

KCAP

) shares currently have a dividend yield of 16.70%.

KCAP Financial, Inc. is a private equity and venture capital firm specializing in mid market, buyouts, and mezzanine investments. It focuses on mature and middle market companies. The company has a P/E ratio of 22.86.

The average volume for KCAP Financial has been 188,700 shares per day over the past 30 days. KCAP Financial has a market cap of $186.4 million and is part of the financial services industry. Shares are down 27% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

TST Recommends

KCAP Financial

as a

hold

. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 5.1%. Since the same quarter one year prior, revenues rose by 14.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has significantly increased by 127.72% to $13.70 million when compared to the same quarter last year. In addition, KCAP FINANCIAL INC has also vastly surpassed the industry average cash flow growth rate of 65.52%.
  • The gross profit margin for KCAP FINANCIAL INC is currently very high, coming in at 78.99%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 11.03% trails the industry average.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Capital Markets industry and the overall market, KCAP FINANCIAL INC's return on equity is below 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 32.63%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 91.17% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.

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Rose Rock Midstream

Dividend Yield: 9.60%

Rose Rock Midstream

(NYSE:

RRMS

) shares currently have a dividend yield of 9.60%.

Rose Rock Midstream, L.P. owns, operates, develops, and acquires a portfolio of midstream energy assets. The company gathers, transports, stores, distributes, and markets crude oil in Colorado, Kansas, Louisiana, Montana, New Mexico, North Dakota, Ohio, Oklahoma, Texas, and Wyoming. The company has a P/E ratio of 18.88.

The average volume for Rose Rock Midstream has been 134,500 shares per day over the past 30 days. Rose Rock Midstream has a market cap of $1.0 billion and is part of the energy industry. Shares are down 43.4% year-to-date as of the close of trading on Tuesday.

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TheStreet Ratings rates

Rose Rock Midstream

as a

hold

. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, notable return on equity and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, generally higher debt management risk and poor profit margins.

Highlights from the ratings report include:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 55.1% when compared to the same quarter one year prior, rising from $11.01 million to $17.07 million.
  • 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 Oil, Gas & Consumable Fuels industry and the overall market, ROSE ROCK MIDSTREAM LP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Despite the weak revenue results, RRMS has outperformed against the industry average of 34.1%. Since the same quarter one year prior, revenues fell by 23.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • The debt-to-equity ratio is very high at 2.74 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, RRMS's quick ratio is somewhat strong at 1.09, demonstrating the ability to handle short-term liquidity needs.
  • Looking at the price performance of RRMS's shares over the past 12 months, there is not much good news to report: the stock is down 47.30%, 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. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, RRMS is still more expensive than most of the other companies in its industry.

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