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." KCAP Financial (NASDAQ: KCAP) shares currently have a dividend yield of 12.10%. KCAP Financial, Inc. is a private equity and venture capital firm specializing in mid market, buyouts, and mezzanine investments. It focuses on mature and middle market companies. The company has a P/E ratio of 8.24. The average volume for KCAP Financial has been 211,400 shares per day over the past 30 days. KCAP Financial has a market cap of $274.7 million and is part of the financial services industry. Shares are up 2.1% year-to-date as of the close of trading on Tuesday. TheStreet Ratings rates KCAP Financial as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, attractive valuation levels, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 16.9%. Since the same quarter one year prior, revenues rose by 22.1%. 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.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, KCAP FINANCIAL INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- KCAP FINANCIAL INC 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. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, KCAP FINANCIAL INC increased its bottom line by earning $0.91 versus $0.32 in the prior year. This year, the market expects earnings to be in line with last year ($0.91 versus $0.91).
- The gross profit margin for KCAP FINANCIAL INC is currently very high, coming in at 82.83%. Regardless of KCAP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KCAP's net profit margin of -0.73% significantly underperformed when compared to the industry average.
- You can view the full KCAP Financial Ratings Report.
- HGT's very impressive revenue growth greatly exceeded the industry average of 3.3%. Since the same quarter one year prior, revenues leaped by 119.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- HGT 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.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, HUGOTON ROYALTY TRUST's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 367.6% when compared to the same quarter one year prior, rising from $2.15 million to $10.05 million.
- The gross profit margin for HUGOTON ROYALTY TRUST is currently very high, coming in at 100.00%. HGT has managed to maintain the strong profit margin since the same quarter of last year. Despite the mixed results of the gross profit margin, HGT's net profit margin of 95.01% significantly outperformed against the industry.
- You can view the full Hugoton Royalty Ratings Report.
- The revenue growth greatly exceeded the industry average of 16.9%. 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. In addition, NEW MOUNTAIN FINANCE CORP has also vastly surpassed the industry average cash flow growth rate of -112.87%.
- 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 30.2% in earnings ($1.54 versus $2.20).
- You can view the full New Mountain Finance Ratings Report.
- Our dividend calendar.