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."

Solar Capital

Dividend Yield: 9.90%

Solar Capital

(NASDAQ:

SLRC

) shares currently have a dividend yield of 9.90%.

Solar Capital Ltd. is a business development company specializing in investments in leveraged middle market companies. The company has a P/E ratio of 20.43.

The average volume for Solar Capital has been 169,500 shares per day over the past 30 days. Solar Capital has a market cap of $685.4 million and is part of the financial services industry. Shares are down 4.4% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates

Solar Capital

as a

hold

. The company's strengths can be seen in multiple areas, such as its revenue growth 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 5.5%. Since the same quarter one year prior, revenues slightly increased by 7.3%. 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.
  • The gross profit margin for SOLAR CAPITAL LTD is rather high; currently it is at 68.53%. Regardless of SLRC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SLRC's net profit margin of 0.28% is significantly lower than the industry average.
  • SOLAR CAPITAL LTD 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, SOLAR CAPITAL LTD reported lower earnings of $1.12 versus $1.70 in the prior year. This year, the market expects an improvement in earnings ($1.52 versus $1.12).
  • Net operating cash flow has declined marginally to -$127.54 million or 2.75% 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 SOLAR CAPITAL LTD has not done very well: it is down 9.24% 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. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.

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Pennant Park Investment

Dividend Yield: 19.60%

Pennant Park Investment

(NASDAQ:

PNNT

) shares currently have a dividend yield of 19.60%.

PennantPark Investment Corporation is a publicly listed business development firm specializing in direct and mezzanine investments in middle market companies. It invests in the form of mezzanine debt, senior secured loans, and equity investments. The company has a P/E ratio of 3.45.

The average volume for Pennant Park Investment has been 581,900 shares per day over the past 30 days. Pennant Park Investment has a market cap of $417.4 million and is part of the financial services industry. Shares are down 11.2% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates

Pennant Park Investment

as a

hold

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

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 Capital Markets industry. The net income increased by 225.7% when compared to the same quarter one year prior, rising from -$1.10 million to $1.39 million.
  • PENNANTPARK INVESTMENT CORP 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, PENNANTPARK INVESTMENT CORP swung to a loss, reporting -$0.13 versus $1.66 in the prior year. This year, the market expects an improvement in earnings ($1.01 versus -$0.13).
  • PNNT'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 34.75%, 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.
  • 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, PENNANTPARK INVESTMENT CORP's return on equity significantly trails that of both the industry average and the S&P 500.

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Terra Nitrogen

Dividend Yield: 11.20%

Terra Nitrogen

(NYSE:

TNH

) shares currently have a dividend yield of 11.20%.

Terra Nitrogen Company, L.P. produces nitrogen fertilizer products in the United States. It primarily offers anhydrous ammonia and urea ammonium nitrate solutions for farmers to improve the yield and quality of their crops. Terra Nitrogen GP Inc. serves as the general partner of the company. The company has a P/E ratio of 9.45.

The average volume for Terra Nitrogen has been 20,300 shares per day over the past 30 days. Terra Nitrogen has a market cap of $1.9 billion and is part of the chemicals industry. Shares are down 1.6% year-to-date as of the close of trading on Wednesday.

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TheStreet Ratings rates

Terra Nitrogen

as a

hold

. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 18.6%. Since the same quarter one year prior, revenues rose by 11.2%. 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.
  • TNH has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.03, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for TERRA NITROGEN CO -LP is rather high; currently it is at 56.06%. Regardless of TNH's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TNH's net profit margin of 46.20% significantly outperformed against the industry.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, TNH has underperformed the S&P 500 Index, declining 9.36% from its price level of one year ago. 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.
  • TERRA NITROGEN CO -LP's earnings per share declined by 14.2% in the most recent quarter compared to 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, TERRA NITROGEN CO -LP reported lower earnings of $12.07 versus $15.77 in the prior year.

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