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 "Hold." NGP Capital Resources Company (NASDAQ: NGPC) shares currently have a dividend yield of 8.70%. NGP Capital Resources Company is a business development company specializing in investments in small and mid size and middle market companies. The company has a P/E ratio of 183.75. The average volume for NGP Capital Resources Company has been 49,000 shares per day over the past 30 days. NGP Capital Resources Company has a market cap of $150.7 million and is part of the financial services industry. Shares are down 0.9% year-to-date as of the close of trading on Monday. TheStreet Ratings rates NGP Capital Resources Company as a hold. The company's strengths can be seen in multiple areas, such as its expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- The gross profit margin for NGP CAPITAL RESOURCES CO is rather high; currently it is at 55.30%. Regardless of NGPC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NGPC's net profit margin of 84.66% significantly outperformed against the industry.
- Net operating cash flow has significantly increased by 102.72% to $2.40 million when compared to the same quarter last year. Despite an increase in cash flow, NGP CAPITAL RESOURCES CO's cash flow growth rate is still lower than the industry average growth rate of 149.77%.
- Despite the weak revenue results, NGPC has outperformed against the industry average of 16.8%. Since the same quarter one year prior, revenues slightly dropped by 5.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 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. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, NGP CAPITAL RESOURCES CO underperformed against that of the industry average and is significantly less than that of the S&P 500.
- In its most recent trading session, NGPC 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 NGP Capital Resources Company Ratings Report.