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 and 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 5 stocks with substantial yields, that ultimately, we have rated "Buy." Solar Capital (NASDAQ: SLRC) shares currently have a dividend yield of 10.10%. Solar Capital Ltd. is a business development company specializing in investments in leveraged middle market companies. The company has a P/E ratio of 7.62. Currently there are 7 analysts that rate Solar Capital a buy, no analysts rate it a sell, and 2 rate it a hold. The average volume for Solar Capital has been 510,200 shares per day over the past 30 days. Solar Capital has a market cap of $1.1 billion and is part of the financial services industry. Shares are down 1% year to date as of the close of trading on Monday. TheStreet Ratings rates Solar Capital as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- SLRC's revenue growth has slightly outpaced the industry average of 10.1%. Since the same quarter one year prior, revenues rose by 15.2%. 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.
- The gross profit margin for SOLAR CAPITAL LTD is rather high; currently it is at 67.50%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 56.18% significantly outperformed against the industry average.
- 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 Capital Markets industry and the overall market on the basis of return on equity, SOLAR CAPITAL LTD has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- SOLAR CAPITAL LTD has exprienced 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, SOLAR CAPITAL LTD increased its bottom line by earning $3.12 versus $1.69 in the prior year. For the next year, the market is expecting a contraction of 22.1% in earnings ($2.43 versus $3.12).
- You can view the full Solar Capital Ratings Report.