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."

Fifth Street Finance

Dividend Yield: 12.90%

Fifth Street Finance

(NASDAQ:

FSC

) shares currently have a dividend yield of 12.90%.

Fifth Street Finance Corp. The company has a P/E ratio of 6.95.

The average volume for Fifth Street Finance has been 615,500 shares per day over the past 30 days. Fifth Street Finance has a market cap of $807.9 million and is part of the financial services industry. Shares are down 12.7% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates

Fifth Street Finance

as a

hold

. Among the primary strengths of the company is its expanding profit margins over time. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow.

Highlights from the ratings report include:

  • The gross profit margin for FIFTH STREET FINANCE CORP is rather high; currently it is at 65.78%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, FSC's net profit margin of 8.36% significantly trails the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 13.7%. Since the same quarter one year prior, revenues fell by 10.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • FIFTH STREET FINANCE 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. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, FIFTH STREET FINANCE CORP reported lower earnings of $0.11 versus $0.79 in the prior year. This year, the market expects an improvement in earnings ($0.70 versus $0.11).
  • 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 80.7% when compared to the same quarter one year ago, falling from $25.74 million to $4.98 million.
  • 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 Capital Markets industry and the overall market on the basis of return on equity, FIFTH STREET FINANCE CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.

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Rose Rock Midstream

Dividend Yield: 10.70%

Rose Rock Midstream

(NYSE:

RRMS

) shares currently have a dividend yield of 10.70%.

Rose Rock Midstream, L.P. owns, operates, develops, and acquires a portfolio of midstream energy assets. It gathers, transports, stores, distributes, and markets crude oil in Colorado, Kansas, Minnesota, Montana, North Dakota, Ohio, Oklahoma, Pennsylvania, Texas, and Wyoming. The company has a P/E ratio of 23.15.

The average volume for Rose Rock Midstream has been 204,400 shares per day over the past 30 days. Rose Rock Midstream has a market cap of $912.5 million and is part of the energy industry. Shares are up 63% year-to-date as of the close of trading on Wednesday.

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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 revenue growth, notable return on equity and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:

  • RRMS's very impressive revenue growth greatly exceeded the industry average of 24.0%. Since the same quarter one year prior, revenues leaped by 51.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ROSE ROCK MIDSTREAM LP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • ROSE ROCK MIDSTREAM LP 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, ROSE ROCK MIDSTREAM LP reported lower earnings of $0.79 versus $1.52 in the prior year. This year, the market expects an improvement in earnings ($1.44 versus $0.79).
  • RRMS'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 39.11%, 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. 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.
  • The debt-to-equity ratio is very high at 3.34 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, RRMS maintains a poor quick ratio of 1.00, which illustrates the inability to avoid short-term cash problems.

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Student Transportation

Dividend Yield: 8.40%

Student Transportation

(NASDAQ:

STB

) shares currently have a dividend yield of 8.40%.

Student Transportation Inc., together with its subsidiaries, provides student transportation solutions in North America. The company offers contracted, managed, special needs transportation, direct-to-parent, and charter services.

The average volume for Student Transportation has been 109,900 shares per day over the past 30 days. Student Transportation has a market cap of $508.0 million and is part of the transportation industry. Shares are up 40.7% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates

Student Transportation

as a

hold

. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including poor profit margins and generally higher debt management risk.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 9.3%. Since the same quarter one year prior, revenues rose by 10.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Road & Rail industry. The net income increased by 99.1% when compared to the same quarter one year prior, rising from $1.89 million to $3.77 million.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
  • Currently the debt-to-equity ratio of 1.57 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Even though the debt-to-equity ratio is weak, STB's quick ratio is somewhat strong at 1.33, demonstrating the ability to handle short-term liquidity needs.
  • The gross profit margin for STUDENT TRANSPORTATION INC is currently lower than what is desirable, coming in at 25.68%. Regardless of STB's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, STB's net profit margin of 2.17% is significantly lower than the industry average.

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