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." Pennant Park Investment Corporation (NASDAQ: PNNT) shares currently have a dividend yield of 9.50%. PennantPark Investment Corporation is a publicly listed business development firm specializing in direct and mezzanine investments in middle market companies. It invests in the form of mezzanine debt, senior secured loans, and equity investments. The company has a P/E ratio of 8.51. The average volume for Pennant Park Investment Corporation has been 323,400 shares per day over the past 30 days. Pennant Park Investment Corporation has a market cap of $787.2 million and is part of the financial services industry. Shares are up 7.6% year to date as of the close of trading on Tuesday. TheStreet Ratings rates Pennant Park Investment Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations, compelling growth in net income and notable return on equity. 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:
- The revenue growth came in higher than the industry average of 8.7%. Since the same quarter one year prior, revenues rose by 14.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The gross profit margin for PENNANTPARK INVESTMENT CORP is rather high; currently it is at 65.79%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 40.87% significantly outperformed against the industry average.
- Net operating cash flow has significantly increased by 345.59% to $74.24 million when compared to the same quarter last year. In addition, PENNANTPARK INVESTMENT CORP has also vastly surpassed the industry average cash flow growth rate of 272.26%.
- 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 303.2% when compared to the same quarter one year prior, rising from $3.42 million to $13.79 million.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, PENNANTPARK INVESTMENT CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full Pennant Park Investment Corporation Ratings Report.
- The revenue growth came in higher than the industry average of 8.7%. Since the same quarter one year prior, revenues rose by 18.6%. 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 61.45%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 79.39% significantly outperformed against the industry average.
- Net operating cash flow has significantly increased by 175.55% to $63.21 million when compared to the same quarter last year. Despite an increase in cash flow of 175.55%, NEW MOUNTAIN FINANCE CORP is still growing at a significantly lower rate than the industry average of 272.26%.
- 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.
- NEW MOUNTAIN FINANCE CORP's earnings per share declined by 25.8% in the most recent quarter compared to 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, NEW MOUNTAIN FINANCE CORP increased its bottom line by earning $2.20 versus $1.02 in the prior year. For the next year, the market is expecting a contraction of 30.7% in earnings ($1.53 versus $2.20).
- You can view the full New Mountain Finance Ratings Report.
- Powered by its strong earnings growth of 1800.00% and other important driving factors, this stock has surged by 33.28% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CODI should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- COMPASS DIVERSIFIED HOLDINGS reported significant earnings per share improvement 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 two years. We feel that this trend should continue. During the past fiscal year, COMPASS DIVERSIFIED HOLDINGS continued to lose money by earning -$0.05 versus -$0.81 in the prior year. This year, the market expects an improvement in earnings ($1.61 versus -$0.05).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Financial Services industry. The net income increased by 2005.2% when compared to the same quarter one year prior, rising from $3.49 million to $73.39 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 13.4%. Since the same quarter one year prior, revenues rose by 10.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- You can view the full Compass Diversified Holdings Shares of Bene Ratings Report.
- Our dividend calendar.