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 3 stocks with substantial yields, that ultimately, we have rated "Hold." Golub Capital BDC (NASDAQ: GBDC) shares currently have a dividend yield of 7.60%. Golub Capital BDC, Inc. is a business development company and operates as an externally managed closed-end non-diversified management investment company. It invests in debt and minority equity investments in middle-market companies that are, in most cases, sponsored by private equity investors. The company has a P/E ratio of 12.35. The average volume for Golub Capital BDC has been 306,100 shares per day over the past 30 days. Golub Capital BDC has a market cap of $555.8 million and is part of the financial services industry. Shares are up 5.1% year to date as of the close of trading on Friday. TheStreet Ratings rates Golub Capital BDC as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in stock price during the past year and good cash flow from operations. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 10.4%. Since the same quarter one year prior, revenues rose by 48.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The gross profit margin for GOLUB CAPITAL BDC INC is rather high; currently it is at 67.20%. Regardless of GBDC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GBDC's net profit margin of 50.82% significantly outperformed against the industry.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Capital Markets industry average, but is greater than that of the S&P 500. The net income increased by 50.5% when compared to the same quarter one year prior, rising from $6.19 million to $9.32 million.
- 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, GOLUB CAPITAL BDC INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full Golub Capital BDC Ratings Report.