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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 "Sell."

KCAP Financial

Dividend Yield: 19.00%

KCAP Financial

(NASDAQ:

KCAP

) shares currently have a dividend yield of 19.00%.

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 average volume for KCAP Financial has been 170,400 shares per day over the past 30 days. KCAP Financial has a market cap of $116.9 million and is part of the financial services industry. Shares are down 21.1% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

KCAP Financial

TheStreet Recommends

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Highlights from the ratings report include:

  • 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 294.9% when compared to the same quarter one year ago, falling from $8.24 million to -$16.05 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, KCAP FINANCIAL INC'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 49.85%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 286.95% 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.
  • KCAP FINANCIAL 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 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, KCAP FINANCIAL INC reported lower earnings of $0.43 versus $0.53 in the prior year. This year, the market expects an improvement in earnings ($0.68 versus $0.43).
  • The gross profit margin for KCAP FINANCIAL INC is currently very high, coming in at 81.05%. 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 -136.25% is in-line with the industry average.

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MVC Capital

Dividend Yield: 7.50%

MVC Capital

(NYSE:

MVC

) shares currently have a dividend yield of 7.50%.

MVC Capital, Inc. The company has a P/E ratio of 30.12.

The average volume for MVC Capital has been 61,200 shares per day over the past 30 days. MVC Capital has a market cap of $164.1 million and is part of the financial services industry. Shares are down 1.2% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

MVC Capital

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • 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 the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The share price of MVC CAPITAL INC has not done very well: it is down 22.03% 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.

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American Capital Mortgage Investment

Dividend Yield: 11.90%

American Capital Mortgage Investment

(NASDAQ:

MTGE

) shares currently have a dividend yield of 11.90%.

American Capital Mortgage Investment Corp. operates as a real estate investment trust (REIT) in the United States.

The average volume for American Capital Mortgage Investment has been 535,600 shares per day over the past 30 days. American Capital Mortgage Investment has a market cap of $670.6 million and is part of the real estate industry. Shares are down 3% year-to-date as of the close of trading on Thursday.

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TheStreet Ratings rates

American Capital Mortgage Investment

as a

sell

. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.

Highlights from the ratings report include:

  • 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 Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 389.5% when compared to the same quarter one year ago, falling from $8.29 million to -$24.01 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 Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN CAPITAL MTG INV CP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $26.81 million or 23.87% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly 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 33.02%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 450.00% 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.
  • AMERICAN CAPITAL MTG INV CP 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. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, AMERICAN CAPITAL MTG INV CP turned its bottom line around by earning $3.06 versus -$1.58 in the prior year. For the next year, the market is expecting a contraction of 35.3% in earnings ($1.98 versus $3.06).

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