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 "Hold." New Mountain Finance (NYSE: NMFC) shares currently have a dividend yield of 9.10%. New Mountain Finance Corporation operates as a closed-end, non-diversified management investment company. The average volume for New Mountain Finance has been 377,500 shares per day over the past 30 days. New Mountain Finance has a market cap of $363.6 million and is part of the conglomerates industry. Shares are up 1.1% year to date as of the close of trading on Thursday. TheStreet Ratings rates New Mountain Finance as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 4.7%. Since the same quarter one year prior, revenues rose by 44.3%. 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 NEW MOUNTAIN FINANCE CORP is rather high; currently it is at 66.00%. Regardless of NMFC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NMFC's net profit margin of 68.78% significantly outperformed against the industry.
- 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, NEW MOUNTAIN FINANCE CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- The change in net income from the same quarter one year ago has exceeded that of the Capital Markets industry average, but is less than that of the S&P 500. The net income has decreased by 4.8% when compared to the same quarter one year ago, dropping from $17.86 million to $17.00 million.
- Net operating cash flow has significantly decreased to -$128.89 million or 100.62% when compared to the same quarter last year. Despite a decrease in cash flow NEW MOUNTAIN FINANCE CORP is still fairing well by exceeding its industry average cash flow growth rate of -121.89%.
- You can view the full New Mountain Finance Ratings Report.