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 "Buy." Pennant Park Investment Corporation (NASDAQ: PNNT) shares currently have a dividend yield of 9.40%. 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 8.54. The average volume for Pennant Park Investment Corporation has been 326,000 shares per day over the past 30 days. Pennant Park Investment Corporation has a market cap of $789.9 million and is part of the financial services industry. Shares are up 6.4% year-to-date as of the close of trading on Thursday. 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 the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 8.6%. 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 273.40%.
- 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.