Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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."PennantPark Floating Rate Capital (NASDAQ: PFLT) shares currently have a dividend yield of 7.80%. PennantPark Floating Rate Capital Ltd. is a business development company. It seeks to make secondary direct, debt, equity, and loan investments. The fund seeks to invest through floating rate loans in private or thinly traded or small market-cap, public middle market companies. The company has a P/E ratio of 12.59. The average volume for PennantPark Floating Rate Capital has been 77,700 shares per day over the past 30 days. PennantPark Floating Rate Capital has a market cap of $206.3 million and is part of the financial services industry. Shares are up 9.1% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates PennantPark Floating Rate Capital 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 net income. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, disappointing return on equity and weak operating cash flow. Highlights from the ratings report include:
- PFLT's very impressive revenue growth greatly exceeded the industry average of 8.8%. Since the same quarter one year prior, revenues leaped by 74.8%. 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 PENNANTPARK FLOATING RT CAP is rather high; currently it is at 65.94%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 89.36% significantly outperformed against the industry average.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Capital Markets industry and the overall market, PENNANTPARK FLOATING RT CAP's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$77.29 million or 308.08% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full PennantPark Floating Rate Capital Ratings Report.
- The gross profit margin for FULL CIRCLE CAPITAL CORP is currently very high, coming in at 535.92%. It has increased significantly from the same period last year. Along with this, the net profit margin of 794.71% significantly outperformed against the industry average.
- FULL CIRCLE CAPITAL CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, FULL CIRCLE CAPITAL CORP increased its bottom line by earning $0.52 versus $0.44 in the prior year. This year, the market expects an improvement in earnings ($0.76 versus $0.52).
- FULL, with its very weak revenue results, has greatly underperformed against the industry average of 8.8%. Since the same quarter one year prior, revenues plummeted by 111.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Net operating cash flow has significantly decreased to -$11.36 million or 214.26% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- In its most recent trading session, FULL 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, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full Full Circle Capital Ratings Report.
- DSWL 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. Along with this, the company maintains a quick ratio of 3.98, which clearly demonstrates the ability to cover short-term cash needs.
- The revenue fell significantly faster than the industry average of 7.4%. Since the same quarter one year prior, revenues fell by 27.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The share price of DESWELL INDUSTRIES INC has not done very well: it is down 5.36% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The gross profit margin for DESWELL INDUSTRIES INC is rather low; currently it is at 16.80%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -10.34% is significantly below that of the industry average.
- Net operating cash flow has significantly decreased to -$0.63 million or 339.86% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full Deswell Industries Ratings Report.
- NRT's revenue growth has slightly outpaced the industry average of 5.4%. Since the same quarter one year prior, revenues slightly increased by 3.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income increased by 3.8% when compared to the same quarter one year prior, going from $4.68 million to $4.86 million.
- NORTH EUROPEAN OIL RTY TR's earnings per share improvement from the most recent quarter was slightly positive. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, NORTH EUROPEAN OIL RTY TR reported lower earnings of $2.26 versus $2.46 in the prior year.
- NRT has underperformed the S&P 500 Index, declining 19.42% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full North European Oil Royalty Ratings Report.
- Our dividend calendar.