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 4 stocks with substantial yields, that ultimately, we have rated "Hold." TCP Capital (NASDAQ: TCPC) shares currently have a dividend yield of 9.10%. TCP Capital Corp. is a business development company specializing in investments in debt of public and private middle market companies. The fund also provides leveraged loans. It seeks to invests in the United States. The company has a P/E ratio of 7.19. The average volume for TCP Capital has been 254,100 shares per day over the past 30 days. TCP Capital has a market cap of $419.5 million and is part of the real estate industry. Shares are up 6.8% year to date as of the close of trading on Wednesday. TheStreet Ratings rates TCP Capital as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that the stock has experienced relatively poor performance when compared with the S&P 500 during the past year. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 12.7%. Since the same quarter one year prior, revenues rose by 30.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- TCP CAPITAL CORP has improved earnings per share by 42.9% in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.60 versus $1.20).
- The gross profit margin for TCP CAPITAL CORP is currently very high, coming in at 81.49%. Regardless of TCPC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TCPC's net profit margin of 67.51% significantly outperformed against the industry.
- When compared to other companies in the Capital Markets industry and the overall market, TCP CAPITAL CORP's return on equity is below that of both the industry average and the S&P 500.
- In its most recent trading session, TCPC 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. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- You can view the full TCP Capital Ratings Report.