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." Gladstone Capital (NASDAQ: GLAD) shares currently have a dividend yield of 8.40%. Gladstone Capital Corporation is a business development company specializing in investments in debt and equity securities. The company has a P/E ratio of 6.13. The average volume for Gladstone Capital has been 119,400 shares per day over the past 30 days. Gladstone Capital has a market cap of $209.8 million and is part of the financial services industry. Shares are up 4.4% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Gladstone Capital as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, notable return on equity and attractive valuation levels. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Capital Markets industry average. The net income increased by 25.6% when compared to the same quarter one year prior, rising from $8.37 million to $10.51 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. In comparison to the other companies in the Capital Markets industry and the overall market, GLADSTONE CAPITAL CORP's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
- The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- GLADSTONE CAPITAL CORP has improved earnings per share by 25.0% 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, GLADSTONE CAPITAL CORP turned its bottom line around by earning $1.53 versus -$0.38 in the prior year. For the next year, the market is expecting a contraction of 45.1% in earnings ($0.84 versus $1.53).
- Net operating cash flow has significantly decreased to -$1.20 million or 113.62% 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 Gladstone Capital Ratings Report.
- Compared to its closing price of one year ago, BGCP's share price has jumped by 62.47%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- 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, BGC PARTNERS INC's return on equity exceeds that of both the industry average and the S&P 500.
- BGC PARTNERS 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. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BGC PARTNERS INC increased its bottom line by earning $0.35 versus $0.16 in the prior year. This year, the market expects an improvement in earnings ($0.57 versus $0.35).
- The gross profit margin for BGC PARTNERS INC is currently extremely low, coming in at 5.26%. Regardless of BGCP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, BGCP's net profit margin of 0.96% is significantly lower than the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Capital Markets industry. The net income has significantly decreased by 70.8% when compared to the same quarter one year ago, falling from $14.17 million to $4.13 million.
- You can view the full BGC Partners Ratings Report.
- The revenue growth came in higher than the industry average of 6.3%. Since the same quarter one year prior, revenues rose by 20.8%. 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.
- This stock's share value has moved by only 8.96% over the past year. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- UMH PROPERTIES INC's earnings have gone downhill when comparing its most recently reported quarter with the same quarter a year earlier. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, UMH PROPERTIES INC reported lower earnings of $0.11 versus $0.14 in the prior year.
- The gross profit margin for UMH PROPERTIES INC is rather low; currently it is at 16.46%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 4.48% significantly trails the industry average.
- Net operating cash flow has significantly decreased to -$0.06 million or 108.80% 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 UMH Properties Ratings Report.
- Our dividend calendar.