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."

Capitala Finance

Dividend Yield: 12.90%

Capitala Finance

(NASDAQ:

CPTA

) shares currently have a dividend yield of 12.90%.

Capitala Finance Corp. is a Business Development Company specializing in investments in traditional mezzanine, senior subordinated and unitranche debt, second-lien loans, equity securities issued by lower and traditional middle-market companies, and small and middle-market companies. The company has a P/E ratio of 80.94.

The average volume for Capitala Finance has been 79,500 shares per day over the past 30 days. Capitala Finance has a market cap of $235.2 million and is part of the financial services industry. Shares are down 18.4% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates

Capitala Finance

as a

hold

. The company's strengths can be seen in multiple areas, such as its robust 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 6.9%. Since the same quarter one year prior, revenues rose by 20.4%. 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 CAPITALA FINANCE CORP is rather high; currently it is at 66.28%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 32.76% significantly outperformed against the industry average.
  • CAPITALA FINANCE CORP's earnings per share declined by 35.4% 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 year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, CAPITALA FINANCE CORP swung to a loss, reporting -$0.27 versus $1.13 in the prior year. This year, the market expects an improvement in earnings ($1.57 versus -$0.27).
  • Net operating cash flow has significantly decreased to -$25.26 million or 535.71% 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 CAPITALA FINANCE CORP has not done very well: it is down 20.43% 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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Global Ship Lease

Dividend Yield: 8.70%

Global Ship Lease

(NYSE:

GSL

) shares currently have a dividend yield of 8.70%.

Global Ship Lease, Inc. owns and charters containerships of various sizes under long-term fixed-rate charters to container shipping companies. As of April 21, 2015, it owned 19 vessels with a total capacity of 82,475 twenty-foot equivalent units. The company has a P/E ratio of 6.76.

The average volume for Global Ship Lease has been 86,100 shares per day over the past 30 days. Global Ship Lease has a market cap of $218.7 million and is part of the transportation industry. Shares are up 4.2% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates

Global Ship Lease

as a

hold

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

Highlights from the ratings report include:

  • The revenue growth greatly exceeded the industry average of 11.4%. Since the same quarter one year prior, revenues rose by 22.4%. Growth in the company's revenue appears to have helped boost 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 Marine industry. The net income increased by 259.2% when compared to the same quarter one year prior, rising from -$2.29 million to $3.64 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. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • The debt-to-equity ratio of 1.03 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, GSL has managed to keep a strong quick ratio of 2.41, which demonstrates the ability to cover short-term cash needs.
  • 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. Compared to other companies in the Marine industry and the overall market, GLOBAL SHIP LEASE INC's return on equity significantly trails that of both the industry average and the S&P 500.

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Horizon Technology Finance

Dividend Yield: 13.80%

Horizon Technology Finance

(NASDAQ:

HRZN

) shares currently have a dividend yield of 13.80%.

Horizon Technology Finance Corporation, a specialty finance company, lends to and invests in development-stage companies in the United States. The company has a P/E ratio of 12.32.

The average volume for Horizon Technology Finance has been 77,300 shares per day over the past 30 days. Horizon Technology Finance has a market cap of $116.1 million and is part of the financial services industry. Shares are down 28.4% year-to-date as of the close of trading on Friday.

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TheStreet Ratings rates

Horizon Technology Finance

as a

hold

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

Highlights from the ratings report include:

  • The gross profit margin for HORIZON TECHNOLOGY FINANCE is rather high; currently it is at 60.54%. Regardless of HRZN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HRZN's net profit margin of 25.44% significantly outperformed against the industry.
  • HRZN, with its decline in revenue, underperformed when compared the industry average of 6.9%. Since the same quarter one year prior, revenues fell by 21.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Capital Markets industry and the overall market, HORIZON TECHNOLOGY FINANCE's return on equity is below that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$34.05 million or 558.74% 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 company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Capital Markets industry average. The net income has significantly decreased by 28.3% when compared to the same quarter one year ago, falling from $2.44 million to $1.75 million.

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