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." Solar Senior Capital (NASDAQ: SUNS) shares currently have a dividend yield of 7.70%. Solar Senior Capital Ltd. is a business development company specializing in investments in leveraged, middle-market companies in the United States. The fund invests in the form of senior secured loans, including first lien, unitranche, and second lien debt instruments. The company has a P/E ratio of 16.65. The average volume for Solar Senior Capital has been 45,200 shares per day over the past 30 days. Solar Senior Capital has a market cap of $211.1 million and is part of the financial services industry. Shares are down 0.2% year-to-date as of the close of trading on Monday. TheStreet Ratings rates Solar Senior Capital as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 16.7%. Since the same quarter one year prior, revenues slightly increased by 0.5%. 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 SOLAR SENIOR CAPITAL LTD is currently very high, coming in at 73.06%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 52.98% significantly outperformed against the industry average.
- Net operating cash flow has significantly increased by 263.69% to $13.70 million when compared to the same quarter last year. In addition, SOLAR SENIOR CAPITAL LTD has also vastly surpassed the industry average cash flow growth rate of -6.95%.
- SOLAR SENIOR CAPITAL LTD's earnings per share declined by 42.5% 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, SOLAR SENIOR CAPITAL LTD turned its bottom line around by earning $1.46 versus -$0.03 in the prior year. For the next year, the market is expecting a contraction of 10.3% in earnings ($1.31 versus $1.46).
- 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 31.6% when compared to the same quarter one year ago, falling from $3.81 million to $2.60 million.
- You can view the full Solar Senior Capital Ratings Report.