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 "Buy." Medley Capital (NYSE: MCC) shares currently have a dividend yield of 10.00%. Medley Capital Corporation is a business development company. The fund seeks to invest in privately negotiated debt and equity securities of small and middle market companies. The company has a P/E ratio of 9.92. The average volume for Medley Capital has been 496,200 shares per day over the past 30 days. Medley Capital has a market cap of $412.8 million and is part of the financial services industry. Shares are up 0.5% year to date as of the close of trading on Thursday. TheStreet Ratings rates Medley Capital as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in stock price during the past year, impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook. Highlights from the ratings report include:
- MCC's very impressive revenue growth greatly exceeded the industry average of 6.0%. Since the same quarter one year prior, revenues leaped by 102.6%. 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. 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.
- MEDLEY CAPITAL CORP has improved earnings per share by 17.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, MEDLEY CAPITAL CORP increased its bottom line by earning $1.24 versus $0.55 in the prior year. This year, the market expects an improvement in earnings ($1.48 versus $1.24).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 97.4% when compared to the same quarter one year prior, rising from $5.84 million to $11.52 million.
- The gross profit margin for MEDLEY CAPITAL CORP is rather high; currently it is at 65.97%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 57.01% significantly outperformed against the industry average.
- You can view the full Medley Capital Ratings Report.
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Diversified Consumer Services industry average. The net income increased by 37.0% when compared to the same quarter one year prior, rising from $1.74 million to $2.38 million.
- CLCT's revenue growth trails the industry average of 26.5%. Since the same quarter one year prior, revenues rose by 10.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- CLCT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, CLCT has a quick ratio of 1.95, which demonstrates the ability of the company to cover short-term liquidity needs.
- 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 Diversified Consumer Services industry and the overall market, COLLECTORS UNIVERSE INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for COLLECTORS UNIVERSE INC is rather high; currently it is at 66.08%. 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 16.42% trails the industry average.
- You can view the full Collectors Universe Ratings Report.
- The revenue growth came in higher than the industry average of 6.0%. Since the same quarter one year prior, revenues rose by 33.1%. 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.
- Net operating cash flow has increased to -$15.76 million or 47.66% when compared to the same quarter last year. In addition, NEW MOUNTAIN FINANCE CORP has also vastly surpassed the industry average cash flow growth rate of -81.71%.
- The gross profit margin for NEW MOUNTAIN FINANCE CORP is rather high; currently it is at 58.05%. 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 97.01% significantly outperformed against the industry.
- 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. 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.
- In its most recent trading session, NMFC has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
- You can view the full New Mountain Finance Ratings Report.
- Our dividend calendar.